Prices Impact in Healthcare

Prices have different purposes that influence the health industry. A change in prices causes the demand curve to move up or down. The law of demand explains how there is a negative relationship between price and quantity (Feldstein, 2011, p. 21). For example, an increase in the price of health insurance makes customers to decrease their demand for health coverage; in opposition, a decrease in health insurance prices will increase the demand for insurance. Moreover, prices of substitute products can cause a shift in the consumer’s demand curve. For instance, a decrease in the price of outpatient centers services, a substitute to some local hospitals services, will cause the demand curve for hospitals services to shift to the left which means a decrease in those hospitals services. In the case of prices of complements which are “goods or services that are used together” (Feldstein, 2011, p. 21), an increase in the price causes the demand for another service to rise. For example, if the price of blood glucose meters increases then the price of the test trips will increase as well.

Price is also a factor that affects supply in the healthcare market. According to Feldstein (2011), higher prices lead to a greater willingness of the supplier to increase output. Therefore, healthcare suppliers, for example, could increase the amount of supplies they buy and also hire a higher number of employees.

In terms of price it is important to consider the price elasticity of demand. Price elasticity is defined as “the percent change in quantity demanded divided by the percentage change in price” (Feldstein, 2011, p. 28). When the elasticity is greater than 1 demand is considered elastic, and if elasticity is between zero and one demand is inelastic. Close substitutes are more elastic while no close substitutes are more inelastic. The healthcare industry is considered to be price inelastic (Liu & Chollet, 2006) since illness is not a very price sensitive issue; however, some...