Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Chapter 14 Economic Theories Introduction • Public health care reforms are often at odds with the realities of government economic policies. • Nurses should understand economic arguments put forth to better understand the benefits and pitfalls of proposed reforms. • Competition in health care is particularly problematic because economic principles of competition are often misapplied. History and Beginnings of Mainstream Economics (1 of 3) • Modern economic thought developed as society industrialized and sought to understand exchange of scare resources. • Scarcity is the key component of economics and means having too few resources to satisfy the needs and wants of humankind. • Without scarcity, the science of economics would not exist because there would be no need to make choices or tradeoffs. History and Beginnings of Mainstream Economics (2 of 3) • Choices made to overcome scarcity via alternatives are of particular interest to economists. • Contemporary economics can be broadly divided into two fields: – Microeconomics: Behaviors in individual markets and small economic units to understand their behavior within the market – Macroeconomics: The “big picture” market that consider aggregate functions of all markets History and Beginnings of Mainstream Economics (3 of 3) • Health care economics is a recently developed specialized field and is differentiated by the level of government intervention, intractable uncertainty, asymmetrical information, and externalities it involves. • Uncertainties in particular lead to inefficient resource allocation in health care that forces nonmarket institutions to compensate for inequalities. Assumptions of Economic Theory • Classical economic theory is familiar to advance practice nurses in the form of social exchange theory. • Social exchange theory adapts assumptions about economic exchange relations to human interactions in all social contexts. • Along with scarcity, rational behavior is the major assumption of social exchange theory. Concepts, Relationships, and Principles in Economic Theories: Markets • Markets are the means by which buyers and sellers engage in trade. • Consumers attempt to maximize utility based on preference and price. • Producers attempt to maximize profit based on their mix of input and output. • Market theory dictates that, at a certain point, the market achieves competitive equilibrium based on allocative efficiency. Production Possibility Curve • The production possibility curve measures the quantities of two goods that may potentially be produced and represents the trade-offs between them. • Opportunity cost is associated with this tradeoff and represents the consequence of scarcity that, when resources are used to produce one product, they are not available to produce another. Demand • Demand is the quantity a buyer is willing to buy at various prices. • Represented by a demand curve that shows how, as price goes up, the quantity demanded goes down. • A shift in the demand curve represents a change in demand based on a change in price. Reasons for Demand Shift • Shifters are factors other than price that influence the quantity demanded: – Normal goods: Demand varies directly with income – Inferior goods: Demand varies inversely with income – Substitutes: Demand for the original increases as it is replaced – Complements: Demand for the complement decreases as price of related goods increases Utility • Utility is the pleasure or satisfaction a consumer derives from a good or service. • Marginal utility is the addition to the total utility that consuming one more unit of a good or services brings to the individual. • The law of diminishing marginal utility states that as consumption increases, marginal utility decreases. Supply • Supply is the quantity of a good or service that producers are able and willing to sell at a particular price. • Represented by a supply curve that shows how, as demand changes, supply changes. • A shift in the supply curve represents a change in supply based on a change in demand. Reasons for Supply to Shift • Changes in the prices of inputs and technology are the two primary shifters of the supply curve. • Change in supplier number or capacity and price to produce related goods also function as shifters. Equilibrium • Equilibrium is achieved when demand for and supply of a product are equal. • Graphically represented by the intersection point of the supply and demand curves. • Disequilibrium occurs when quantities supplied and demanded do not balance: – Surplus: Quantity is greater than demand – Shortage: Demand is greater than quantity • Disequilibrium is corrected through market forces. Elasticity • Elasticity is change in demand and supply in response to change in price and income. • A price elasticity demand ratio greater than one represents price elastic demand. • A price elasticity demand ratio less than one represents price inelastic demand. • The same relationships hold true for supply elasticity and income elasticity. Market Failure • Market success assumes that consumers can maximize their benefits and suppliers can maximize their profits under existing conditions. • In failed markets, competition is flawed, consumers and producers do not make optimal choices, and resources are not used optimally. • Allocation and cost control are not realized. Assessing Assumptions for Validity • Rationality is impacted by people’s perceptions of benefits, status, and the public good associated with a purchase. • Decisions are often made based on incomplete information and inferior knowledge of the impact of decisions. • Supplier-induced demand and monopolies further compound decision making and challenge the validity of rationality as an economic assumption. Economic Analysis of Clinical and Managerial Interventions • Increases in health care costs and efforts to control them have increased the relevance of economic analysis of clinical interventions. • Goal is to achieve identical outcomes at smaller cost increases. • Disease prevention, self-care, and treatment are promoted to achieve this goal. • Further analysis and application of business economic concepts will yield new ideas. Cost Analysis (1 of 3) • Cost analysis involves three tasks: – Clarifying the perspective taken – Identifying the resources used – Identifying the opportunity cost of those resources • Relevant costs depend on stakeholders. • To capture costs, construction of a clinical pathway and understanding of the interventions involved are key. Cost Analysis (2 of 3) • Cost may be direct or indirect and can be divided into three categories: – Cost of the intervention – Cost borne by patients – Costs borne by the rest of society • Cost of illness studies estimate the total monetary effects of a specific disease or condition. Cost Analysis (3 of 3) • Cost of minimization analyses identify the expected costs of two options and show that their outcomes are at least equal. • Cost-benefit analyses compare benefits in terms of disease prevention within the cost of a program. • Cost-effectiveness analyses calculate ratios that measure outcomes in health units and cost of intervention in dollars. Summary • Economic theory informs health care economics. • New economic ides about behavior, selfinterest, and sustainability are challenging traditional ideas of rationality, greed, and equilibrium. • These changes will prove beneficial to health care economics and improve the efficiency and equity of health care.