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Premium member Presentation Transcript Using economics to study health issues - The Market Forces of Supply and Demand: Health economics & Policy James W Henderson Arnob Roy Authorstream.com Presented by: Dr. Naval Asija Using economics to study health issues - The Market Forces of Supply and DemandEconomics: Economics The classic brief definition of economics, set out by Lionel Robbins in 1932, is "the science which studies human behavior as a relation between scarce means having alternative uses." Without scarcity and alternative uses, there is no economic problem . Briefer yet is "the study of how people seek to satisfy needs and wants" and "the study of the financial aspects of human behaviour.“ Economics is one of several social sciences that attempts to explain & predict human behaviourTen key economic concepts: Ten key economic concepts Scarcity & Choice Opportunity Cost Marginal Analysis Self Interest Demand & Supply Efficiency Competition Markets & pricing Market Failure Comparative advantageRelevance of economics in healthcare: Relevance of economics in healthcare Sound policymaking is based on sound economic principles applied in a sensitive & uniform manner Lessons can be learned about human behavior & and the way individuals make decisions and respond to incentives, the way people interact with each other & about efficient allocation of scarce resourcesThe Market Forces of Supply and Demand: The Market Forces of Supply and DemandIntroduction: Introduction Supply & Demand are the two most useful concepts in economics Regardless of the issue being studied analysis often hinges on some aspect of supply & demand Theory of demand & supplyis a powerful tool in predicting future behivior How does a change in price affects consumer’s willingness or ability to purchase a commodity? How does a change in price of a key input affect the producer’s decision of how much to make availableDeterminants of Demand: Determinants of Demand Market price Consumer income Prices of related goods Tastes ExpectationsLaw of demand: Law of demand “ There is an inverse relationship between the amount of commodity that a person will purchase and the sacrifice that must be made to obtain it” Price QuantityStationary Demand Curve: Stationary Demand Curve 3.00 2.50 2.00 1.50 1.00 0.50 2 1 3 4 5 6 7 8 9 10 12 11 Quantity 0 PriceCeteris Paribus: Ceteris Paribus Ceteris paribus is a Latin phrase that means all variables other than the ones being studied are assumed to be constant. Literally, ceteris paribus means “other things being equal.” The demand curve slopes downward because, ceteris paribus , lower prices imply a greater quantity demanded!Change in Quantity Demanded versus Change in Demand: Change in Quantity Demanded versus Change in Demand Change in Quantity Demanded Movement along the demand curve. Caused by a change in the price of the product.Changes in Quantity Demanded: Changes in Quantity Demanded 0 D 1 Price of Cigarettes per Pack Number of Cigarettes Smoked per Day A tax that raises the price of cigarettes results in a movement along the demand curve. A C 20 2.00 $4.00 12Change in Quantity Demanded versus Change in Demand: Change in Quantity Demanded versus Change in Demand Change in Demand A shift in the demand curve, either to the left or right. Caused by a change in a determinant other than the price.Consumer Income Normal Good: Consumer Income Normal Good $3.00 2.50 2.00 1.50 1.00 0.50 2 1 3 4 5 6 7 8 9 10 12 11 Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0 Increase in demand An increase in income... D 1 D 2Consumer Income Inferior Good: Consumer Income Inferior Good $3.00 2.50 2.00 1.50 1.00 0.50 2 1 3 4 5 6 7 8 9 10 12 11 Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0 Decrease in demand An increase in income... D 1 D 2Prices of Related Goods Substitutes & Complements: Prices of Related Goods Substitutes & Complements When a fall in the price of one good reduces the demand for another good, the two goods are called substitutes . When a fall in the price of one good increases the demand for another good, the two goods are called complements .Change in Quantity Demanded versus Change in Demand: Change in Quantity Demanded versus Change in Demand Variables that Affect Quantity Demanded A Change in This Variable . . . Price Represents a movement along the demand curve Income Shifts the demand curve Prices of related goods Shifts the demand curve Tastes Shifts the demand curve Expectations Shifts the demand curve Number of buyers Shifts the demand curveSupply: Supply Quantity supplied is the amount of a good that sellers are willing and able to sell.Determinants of Supply: Determinants of Supply Market price Input prices Technology Expectations Number of producersLaw of Supply: Law of Supply “ There is a direct relationship between the amount of commodity that a producer will make available and the reward that is received ” Price QuantitySupply Curve: Supply Curve $3.00 2.50 2.00 1.50 1.00 0.50 2 1 3 4 5 6 7 8 9 10 12 11 Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0Change in Quantity Supplied: Change in Quantity Supplied 1 5 Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0 S 1.00 A C $3.00 A rise in the price of ice cream cones results in a movement along the supply curve .Change in Supply: Change in Supply Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0 S 1 S 2 S 3 Increase in Supply Decrease in SupplyChange in Quantity Supplied versus Change in Supply: Change in Quantity Supplied versus Change in SupplyEquilibrium of Supply and Demand: Supply Demand Price of Ice-Cream Cone Quantity of Ice-Cream Cones Equilibrium of Supply and Demand 2 1 3 4 5 6 7 8 9 10 12 11 0 $3.00 2.50 2.00 1.50 1.00 0.50 EquilibriumExcess Supply: Price of Ice-Cream Cone Quantity of Ice-Cream Cones 2 1 3 4 5 6 7 8 9 10 12 11 0 $3.00 2.50 2.00 1.50 1.00 0.50 Supply Demand Surplus Excess SupplyExcess Demand: Excess Demand Quantity of Ice-Cream Cones Price of Ice-Cream Cone $2.00 0 1 2 3 4 5 6 7 8 9 10 11 12 13 Supply Demand $1.50 ShortageThree Steps To Analyzing Changes in Equilibrium: Three Steps To Analyzing Changes in Equilibrium Decide whether the event shifts the supply or demand curve (or both). Decide whether the curve(s) shift(s) to the left or to the right. Examine how the shift affects equilibrium price and quantity.How an Increase in Demand Affects the Equilibrium: How an Increase in Demand Affects the Equilibrium Price of Ice-Cream Cone 2.00 0 7 Quantity of Ice-Cream Cones Supply Initial equilibrium D 1 1. Hot weather increases the demand for ice cream... D 2 2. ...resulting in a higher price... $2.50 10 3. ...and a higher quantity sold. New equilibrium Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.How a Decrease in Supply Affects the Equilibrium: S 2 How a Decrease in Supply Affects the Equilibrium Price of Ice-Cream Cone 2.00 0 1 2 3 4 7 8 9 11 12 Quantity of Ice-Cream Cones 13 Demand Initial equilibrium S 1 10 1. An earthquake reduces the supply of ice cream... New equilibrium 2. ...resulting in a higher price... $2.50 3. ...and a lower quantity sold.Price Elasticity of Demand: Price Elasticity of Demand When price changes how much does the quantity demanded change? Price elasticity of demand measures responsiveness of quantity demanded to change in price, holding constant the other variables that affect price ἐ = % change in Q % change in PSlide 32: Elastic Inelastic Perfectly Elastic Perfectly InelasticExercise: Exercise What are the likely consequences of following events in Indian tobacco market on demand & supply curve Which curve shifts In which direction Change in price Change in quantity PLZ show the changes using diagramsSlide 34: Ban of plastics for selling gutkha Stringent rules in prohibition of smoking act Parliament raises tax on tobacoo Due to floods 50% tobacco crop is destroyed Medical evidence that 2 or more cups of coffee( a substitute for smoking) greatly increases the risk of stomach cancerThank you: Thank you You do not have the permission to view this presentation. In order to view it, please contact the author of the presentation.