Class25.pptx
- Type of paperResearch Paper
- SubjectOther
- Number of pages3
- Format of citationAPA
- Number of cited resources3
- Type of serviceWriting
A 3 page research paper—not including references, title page, or figures. Please see the attached file. This will give you an idea about the paper. My instructor suggested I focus the paper by looking at the how the consumption of health care services has changed as health care costs increase. Where do people go for care now? How do they choose?
Mitchell, Taylor N.
Donaldson, Jayda N
Recommended Presentation Outline
My Name is …
The title of my article is…
I found it in…
My article is relevant and interesting because….
The Economics Article
1
P
Q
S
D
Q*
P*
S“
Q**
P**
3
MC
AC
$
X
D
MR
P*
X*
4
Economics
The study of the allocation of scarce resources: implies a cost to every action
Basic assumption
People are rational
People act to maximize their happiness
Economics is predictive
5
Economic Modeling
“The theory of economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique of thinking which helps its possessor to draw correct conclusions.” (John Maynard Keynes)
P
Q
S
D
Q*
P*
7
Demand
Function of
Income
Tastes
Prices of Substitutes
Prices of Compliments
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P
Q
D
Q*
P*
Q**
P**
9
P
Q
D
D1
P1
P2
Q1
Q2
Q1
Q2
10
Price Elasticity of Demand
A measure of sensitivity of quantity demanded to a change in price
Q/Q)
(P/P)
Inelastic demand means that E is small
11
Supply
Function of
Costs of Production
Input Prices
Technology
12
P
Q
S
S1
P1
P2
Q1
Q2
Q1
Q2
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P
Q
S
D
Q*
P*
S“
Q**
P**
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Utility Maximization
MAX U(F, N)
Subject to the budget constraint:
PnN + PfF = I
(with a little algebra)
N= I/Pn – (Pf / Pn) F
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Good X
Y
I/PY
U2
U1
U3
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Theory of the Firm
Firm Maximizes profits
Max: p = Revenue – Costs
Max: p = P(Q)* Q- C(Q)
First Order Conditions:
dp/dQ = P’(Q)*P + P(Q) – C’(Q) =0
P’(Q)*P + P(Q) = C’(Q)
Marginal Revenue = Marginal Costs
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X
$
0
AC
MC
P1
Po
X1
Xo
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Assumptions of Perfect Competition
Free Entry and Exit
Many Buyers and Sellers
Perfect Information
Homogenous product
Costless price and quality information
No externalities
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Monopoly
Literally means one seller
Model applies when firm is large enough to affect price
Meets significant portion of total market demand
Monopoly occurs when
Barriers to entry exist
Large economies of scale (minimum efficient scale is large relative to market)
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MC
AC
$
X
D
MR
P*
X*
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Oligopoly
Few Sellers
What degree of market power do they have?
Market power = firm faces downward sloping demand
Why strive to achieve market power?
Long-run vs Short Run
What are the barriers to market power
Regulation
Sherman & Clayton Acts among others make it illegal to exercise monopoly power
Patents
22
Mergers
Horizontal
A merger between two firms producing the same good
Increases market power
Decreases costs only if firms were operating on increasing returns to scale
Examples: Hospitals Merge
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Horizontal Mergers
Measurement
Economists would like: (P-MC)/MC
Use: Concentration Ratio
% of market share of largest firms
Hirschman-Herfindahl Index
Sum of market share squared for every firm in market
Example: Three firms–largest has 70% of market, second has 20, third has 10. HHI=(.7*.7) + (.2*.2) + (.1*.1)= .49 + .04 +.01 =.54
Usually multiply by 10000 so example HHI=5400.
FTC states any HHI > 2,000 is highly concentrated
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Imperfect Information Issues
Uncertainty/ Risk
Unknown product characteristics
High cost of information
Unknown futures
Unpredictable occurrences
Asymmetrical information
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Insurance
Actuarially Fair Premium: Expected claims= total premiums
EV=P*W1 + (1 – P) * W2
W2 = EV/(1-P) – P/(1-P) * W1
Actuarially Fair Premium = P/(1-P)
Premium = Actuarially Fair Premium + Loading
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45o
U0
U1
Insurance Line
W2
W1
A
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45o
EU0
EU1
Insurance Line (with Loading)
W2
W1
A
W1*
W2*
EU2
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Adverse Selection
Insurance companies can’t observe actual risks
Those with highest risk have highest demand
Premium reflects high risk so low risk don’t purchase coverage
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Moral Hazard
Moral Hazard occurs when the agent’s incentives differ from the principal’s
House painter paid on an hourly takes twice as as long as painter paid on a per job rate.
Doctor orders too many tests
Insured individual takes too many risks
30
Assumptions of Perfect Competition
Free Entry and Exit
Many Buyers and Sellers
Perfect Information
Homogenous product
Costless price and quality information
No externalities
31
Public Goods
Non-Excludable
Non-rivalrous
Sunsets
National Defense
TV/radio?
32
Demand for Public goods
Sum of individual demands?
No: its non-rivalrous
Quantity determined political process
Doesn’t necessarily translate individual demands into public action
No Property Rights
Tragedy of the Commons
Free Riders
33
19th Century
Rapid advancements due to discoveries of microorganisms, anesthesia, and vaccinations
Infection control developed once microorganisms were associated with disease
Formal training for nurses began
Creation of AMA
Changing roll of Hospitals
Average life span 40-60 years
34
34
20th Century
Increased knowledge about the role of blood in the body
ABO blood groups discovered
Found out how white blood cells protect against disease
New medications were developed
Insulin discovered and used to treat diabetes
Antibiotics developed to fight infections
Vaccines were developed
New machines developed
Kidney Dialysis Machine
Heart Lung Machine
Surgical and diagnostic techniques developed to cure once fatal conditions
Average lifespan in the U.S. about 77 years
(at the end of the century)
35
35
Historical Development
Apprenticeships →Medical Schools
AMA formed 1846
State licensure of physicians late 1800’s
GA first state to require graduation from a medical school
1892 (Harvard) and 1893 (John’s Hopkins) established 4 year training post Bachelor’s
1904: AMA created Council on Medical education and established JAMA
Published medical school failure statistics on state licensing exams
P
Q
S
D
Q*
P*
D2
P**
Q**
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Flexner Report
Survey of 155 medical schools in the US and Canada
Entrance requirements, endowments, laboratory quality, size and training of faculty, etc.
Supported by the Carnegie Foundation
Recommendations:
Close all but 31 schools
University based medical school with stronger scientific foundations
P
Q
S
D
Q*
P*
D2
P**
Q**
S3
P***
Q***
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Introduction of Organized Financing and Delivery
Depression: Baylor University Hospital Plan
Enrolled 1250 public school teachers
$.50 per month 21 days hospital care
Blue Cross: Sponsored by hospitals
Blue Shield: Sponsored by physicians
Benefits defined by service
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40
W
Q
Supply
Demand
c
C=cost of insurance
41
D
Q of health services
$
D with full insurance
Q0
Q1
P1
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Coinsurance
D
Q of health services
$
D with insurance
S
Q0
Q1
P
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Effect of Deductible
D
Q of health services
$
D with co-insurance
S
Q0
QC
P
QD
QF
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Technology
(Increased Benefits)
Costs
Insurance
Private Coverage
Social Insurance
(Moral Hazard)
Investment
(Capacity, Research)
45
Total National Health Expenditures and As a Percentage of GDP
46
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
20.00%
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
Ye
ar
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
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88
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90
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92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
P
er
ce
nt
$
National Health Expenditures
National Health Expenditures Percent of GDP
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
20.00%
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
Y
e
a
r
1
9
6
6
1
9
6
8
1
9
7
0
1
9
7
2
1
9
7
4
1
9
7
6
1
9
7
8
1
9
8
0
1
9
8
2
1
9
8
4
1
9
8
6
1
9
8
8
1
9
9
0
1
9
9
2
1
9
9
4
1
9
9
6
1
9
9
8
2
0
0
0
2
0
0
2
2
0
0
4
2
0
0
6
2
0
0
8
P
e
r
c
e
n
t
$
National Health Expenditures
National Health Expenditures Percent of GDP
National Health Expenditures
Year 0.0606195199
1965 0.0602361183
1966 0.0636532583
1967 0.0670667121
1968 0.0690905307
1969 0.0736203676
1970 0.0758126195
1971 0.0780900386
1972 0.077150131
1973 0.0807249482
1974 0.0847936306
1975 0.0860165858
1976 0.089114629
1977 0.090287907
1978 0.0892440351
1979 0.0929677467
1980 0.0961712582
1981 0.1037824777
1982 0.1077974519
1983 0.1054152667
1984 0.1066330865
1985 0.1074548522
1986 0.1111773376
1987 0.1159128819
1988 0.119003745
1989 0.1249057099
1990 0.1327464334
1991 0.1370290989
1992 0.1394766687
1993 0.1392258718
1994 0.1392785991
1995 0.140190711
1996 0.1386929675
1997 0.1386418531
1998 0.139585622
1999 0.1405687789
2000 0.1466438158
2001 0.1551697909
2002 0.1618257734
2003 0.162041834
2004 0.1623613625
2005 0.1624069389
2006 0.1657017097
2007 0.166
2008 0.176
&A
Page &P
National Health Expenditures
Percent of GDP
$
Percent
National Health Expenditures
42173
46430
52062
59012
66396
74894
83265
92974
103034
116809
133126
152473
172820
194119
219933
253365
293582
330734
364668
401590
439275
471254
512950
573989
638705
714011
781611
849046
912554
962190
1016497
1068828
1125327
1190476
1265567
1353593
1469591
1603416
1732442
1852284
1973340
2105541
2245573
2394312
2486300
Sheet1
Year National Health Expenditures Percent of GDP
1965 42,173 6.06% 1 65 $695.70
1966 46,430 6.02% 1 66 $770.80
1967 52,062 6.37% 1 67 $817.90
1968 59,012 6.71% 1 68 $879.90
1969 66,396 6.91% 1 69 $961.00
1970 74,894 7.36% 1 70 $1,017.30
1971 83,265 7.58% 1 71 $1,098.30
1972 92,974 7.81% 1 72 $1,190.60
1973 103,034 7.72% 1 73 $1,335.50
1974 116,809 8.07% 1 74 $1,447.00
1975 133,126 8.48% 1 75 $1,570.00
1976 152,473 8.60% 1 76 $1,772.60
1977 172,820 8.91% 1 77 $1,939.30
1978 194,119 9.03% 1 78 $2,150.00
1979 219,933 8.92% 1 79 $2,464.40
1980 253,365 9.30% 1 80 $2,725.30
1981 293,582 9.62% 1 81 $3,052.70
1982 330,734 10.38% 1 82 $3,186.80
1983 364,668 10.78% 1 83 $3,382.90
1984 401,590 10.54% 1 84 $3,809.60
1985 439,275 10.66% 1 85 $4,119.50
1986 471,254 10.75% 1 86 $4,385.60
1987 512,950 11.12% 1 87 $4,613.80
1988 573,989 11.59% 1 88 $4,951.90
1989 638,705 11.90% 1 89 $5,367.10
1990 714,011 12.49% 1 90 $5,716.40
1991 781,611 13.27% 1 91 $5,888.00
1992 849,046 13.70% 1 92 $6,196.10
1993 912,554 13.95% 1 93 $6,542.70
1994 962,190 13.92% 1 94 $6,911.00
1995 1,016,497 13.93% 1 95 $7,298.30
1996 1,068,828 14.02% 1 96 $7,624.10
1997 1,125,327 13.87% 1 97 $8,113.80
1998 1,190,476 13.86% 1 98 $8,586.70
1999 1,265,567 13.96% 1 99 $9,066.60
2000 1,353,593 14.06% 1 0 $9,629.40
2001 1,469,591 14.66% 1 1 $10,021.50
2002 1,603,416 15.52% 1 2 $10,333.30
2003 1,732,442 16.18% 1 3 $10,705.60
2004 1,852,284 16.20% 1 4 $11,430.90
2005 1,973,340 16.24% 1 5 $12,154.00
2006 2,105,541 16.24% 1 6 $12,964.60
2007 2,245,573 16.57% 1 7 $13,551.90
2008 2,394,312 16.60%
2009 2,486,300 17.60%
Sheet2
Sheet3