The health sector also has needs whose demand and supply vary depending on factors similar to those of ordinary goods and services. The only difference between these goods and services and health care and related goods is that whereas they are wants, health care is a need. As such, it is not something that people can readily spend money on; rather they have to look for it for the sake of their wellbeing. However, it is affected by income, time cost and price elasticity, just as other ordinary goods and services.
Example of Supply and Demand for Public Health Goods and Services
Health and health care can be comfortably treated as if they were goods. Health care is a commodity needed for the well-being of human beings (Getzen, 2013). Therefore, its demand and supply behave exactly as those of other more tangible goods. In health care, there are other goods and services that may be demanded and supplied depending on the needs of the people. They include the number of nurses, beds, drugs, equipment, consultants and doctors among other goods and services (Getzen, 2013).
For example, a hospital located in a rural area may have many patients but few doctors, nurses and beds to accommodate them. Such a situation means the demand for health care is higher than its supply as the patients will not receive the medication they need due to the lack of these things (Schellhorn, 2012). At the same time, the demand for beds, doctors and nurses will be said to be higher than the supply of the same.
Price Elasticity of Demand for Public Health Goods or Services
Income is, usually, directly linked to the increase and decrease in the demand of goods (Gruber & Lettau, 2010). Though health care is a need and not a want, few people opt to have it as an opportunity cost whenever their health status is not very serious. However, when their financial situations improve, they always see the need to seek medical attention at the slightest symptom (Gruber & Lettau, 2010). In a nutshell, when the income of an individual improves, his/her demand for health care also increases.
In the example above, it is expected that many of the people leaving in rural areas will have low incomes. As such, they will rarely visit health care facilities. This is because their income is not enough to allow them to get medication whenever they need it. However, when their incomes increase, they will have enough to get medical attention any time they need it (Schellhorn, 2012).
As mentioned in the foregoing, many of the people in this rural area earn very little. In fact, they are paid per hour, and the money is rarely enough for their needs. As a result of this, they prefer to stay at work rather than go to health care facilities to seek medical attention. This greatly affects the demand for health care and other goods and facilities related to it. Specifically, few people will seek medication and related goods and services. Hence, the demand will remain low.
Influence of Price Elasticity on the Demand
In this example, the demand for health care, doctors and nurses and beds reacts differently to changes in their prices. Precisely, health care and doctors and nurses are inelastic-changes in their prices have little effect on their demand (Pauly, 2013). The reason for this is the nature of these items: they are needs and not wants (Snyderman, Sheldon & Bischoff, 2006). They are mandatory as they are needed for the well-being of the population. Therefore, whether one likes it or not, he/she must seek doctors, nurses and health care. On the other hand, beds are not very mandatory as inpatient services can be replaced with outpatient services. At the same time, doctors can look for alternative beds. Therefore, changes in the prices of beds will greatly affect their demand. Specifically, few of them will be bought.
Getzen, T.E. (2013). Health economics and financing (5th ed.). Hoboken, N.J: John Wiley and Sons.
Gruber, J., & Lettau, M. (2010). How elastic is the firm’s demand for health insurance? Cambridge, MA.: National Bureau of Economic Research.
Pauly, M. (2013). Price elasticity of demand for term life insurance and adverse selection. Cambridge, MA: National Bureau of Economic research.
Schellhorn, M. (2012). The demand for health care. Berlin: Dissertation.
Snyderman, R., Sheldon, G.F., & Bischoff, T.A. (2002). Gauging supply and demand: the challenging quest to predict the future physician workforce. Health Affairs, 21(1), 167-168.