Studies the supply and demand of health care resources and the impact of health care resource on a population.

What specific health care resources should be used.

This is the most straighforward way to illustrate production and allocative efficiency is to use the PPC curve. PPC is an economic model that depicts the various combinations of any two goods or services that can be produced efficiently given the stock of resources, technology, and various institutional arrangements. (i.e. PPC shows the trade-off between any 2 goods given the fixed stock of resources and tech-gy)

The value of the next best alternative that is given up.

The bowed- out shape of the PPC implies that opportunity cost is not consstant but increases with a movement along the curve. This law suggests, that ever increasing amounts of one good must be given up to receive successively more equal increments of another good. p. 7

Distributive Justice or/ Equity

Who should receive the medical goods or services? Is the distribution of resources equitable, or fair, to everyone involved. p.7

Pure Market System: Goods and services are distributed soley based on each person's willingness and ability to pay becasue decisions concerning the four basic questions. That is goods and services are distributed and rationed to only those people who are both willing and able to purchase them in the market place. This system views that people make the consicous decision to work hard save more etc., and ignore their are other factors the may impeded one's ability to do so. This is why the feds step in Egalitarian System:  Here everyone has access to the same goods and services w/o regard to income status or willingness to pay. Though an incentive may exist for people to choose to work and save less because of the consumption decision is divorced from the distribution of earned income. Fewer good and resources may be distributed . Bottom line everyone is in between

The production possiblities curve is an example of an economic model. models are abstractions of reality and in economics they are used to simplify complex reality. They can be stated descriptively, graphically, or mathematically.

regression analysis examines the relation of a dependent variable (response variable) to specified independent variables (explanatory variables). It attempts to isolate the cause and effect relation among variables.

Health economists conduct 2 kinds of analyses:  Positive analysis:  They use the economic theory and empirical analysis to make statements or predictions; they seek to answer ' what is?" and "what happened?". Tends to explain and predict and tends to be free of personal values. whereas..... Normative analysis:  this deals with the appropriateness or desirablity of an econmic outcome or policy. It seeks to answer: " what ought to be?" or "which is better?" Makes value judgements and strikes controversy usually.

Rationality

Major assumption in economics is that people are rational.  People know how to rank their preferences from high to low or best to worst. It also means that people never purposely try to make themselves worse off.

Health is a state of physical mental and physical and social wellbeing absence of disease. Econmists view health as a durable good or type of capital that provides services. If you are healthy you are more productive.

Utility: When services yield satisfaction.

Law of Diminishing Marginal Utility: this law states for each unit of incremental improvement in health, generates smaller and smaller disatisfaction; (i.e., utility). E.g., If Guam received 2 million $ the utility would be greater in comparison to the US.

The quality of medical care is difficult to measure. The differences are exhibited by the following: Structural Quality;  Physical and human resources: facilities (level of amenities); personnel (training and experience); medical equipment (type and age); administration (organization structure). Process Quality:  The actions of providers while providing care e.g., wait time, data collection of history, communication with the patient, diagnosis and treatment. Outcome Quality: Reflects the impact of care on the patient's health and mortality as measured by patient satisfaction.  (work time lost, or post care mortaility rate).

Health production function: is the amount of health that an individual can generate from a specific set of inputs in a given period of time.

Total Product Curve:  individual level of health is positively related to the amount of medical care consumed.

this law implies that health increases at a decreasing rate with respect to additional amounts of medical care holding other inouts constant.

Cost identification studies: generally measure the total cost of a medical condition that is imposed on society or a health behavior. This includes Direct MC costs, Direct non-medical costs, Indirect Costs.

Direct Medical Costs: encompass all cost incurred by medical care providers, such as hospitals, physicians and nursing homes. These also include costs of medical tests, adminstering care, and the cost of any follow up treatments.

Direct Non Medical costs: represent all monetart cost imposed on any non-medical care personnel, including patients. (e.g., patient: transportation to and from medical facility; workplace incurs the cost of instituting a substancs abuse rehabilitaton program. )

Indirect Costs

Indirect Costs:  cosisits of primarily of the time costs associated with implementation of the treatment. E.g., the opportunity cists ti the patient for the time invested to get treatment).

TNSB= Total Social benefit (Quantity) - Total Social Cost (Quantity) We can think of it as the surgeon general trying to maximize

dead weight loss: the net loss amount of social benefits with respect to cost benefit analyis. producing a greater amount or lesser quantity of medical services will lead to ineficciencies or dead weight loss

The society derives from consuming  a unit of a good.

Present Value: The net benefit of an activity yielding a stream of future returns must be expressed in present value terms before proper comparisons can be made.

Human Capital Approach: The value of life to the market value of the output produced by an indiivdual during his or her expected lifetime.

willingness to pay approach: Is based on how much money people are willing to pay for small reduction in the probability of dying. This is an alternative to the "value of life approach".

What is the best way to allocate resources to different consumption uses?

e.g., assume that a new medical treatment is being compared to an old treatment. If the new treatment is less costly than the old treatment it is said to dominate the old and should be adopted.

Cost Utility Analysis: Considers the number of life years saved from a particular medical intervention along with the quality of life during those years that are saved

Quality adjusted Years (QALYS): Cost utility analysis considers the number if life-years saved as a result of a particular medical intervention. QALYS is one of the common scales.

it adjusts the number of life years gained by some type of index that reflects health status or quality life This is the most common. type of cost utility analysis.

Health Utility Index:  usually measured on a 0-1 scale. one equals one year of full health and 0 represents death. Quality of remaining lifeyears

Market Structure

Market structure:  Establishes the overall environment or playing field within which each firm operates. NUmber size and type and distribution of sellers and payers, type of product.

This area is among the 3 areas the inductrial organizational field of economics economists rely on (1. market structure, 2. market conduct, and 3. market performance).

Market Performance:  Feeds off conduct and is reflected in the degree of production and allocative efficiencies, equity and technological progress.

This is one of the three areas that industrial organizational economists conduct studies on they rely on info regarding (market structure, market, conduct, market performance).

Market Power: When competitive market forces are absent or weak. This refers to the firm's ability to restrict output or quality and thereby raise the price. This can be profit seeking bahvior which causes misallocation of resources.

Perfect competition:
1. Number of sellers:  Many sellers possessing tiny market shares
2. Individual firm's market shares:  Homogeneous product
3. Barriers to entry:  No barriers to entry
4. Consumer Information:  Perfect consumer information
 e.g., wheat industry

Actual competition:  The characteristics of many sellers with tiny market shares and homogeneous products taken together mean that actual competition exists in the industry because many substitute firms offer identical products.

Potential Competition: No barriers to entry suggest that the threat of potential competition is high because nothing prevents new firms from entering the industry.

Monopolistic Competition: 1. Number of sellers: has many sellers 2. Individual firm's market share:  small 3. Type of Product: Differentiated 4. Barriers to entry: No barriers to entry 5. Consumer Information:  Slightly imperfect e.g., victory lakes verizon only in the community

Oligopoly: 1. Number of sellers:  Few Dominant sellers 2. Individual Firm's Market Share: Large 3. Type of Product:  Homogeneous of differentiated 4. Barriers to Entry:  Substantial 5. Consumer Information: Perfect of imperfect

Pure Monopoly: Least competitive structure. 1. Number of sellers: One 2. Individual firm's market share: 100% 3. Type of product: Homogeneous 4. Barriers to entry: Complete 5. Consumer Information: Perfect or imperfect

Price Taker: The massive number of consumers and producers results in each individual consumer and producer acting as a price taker. By definiyion a price taker can buy or sell as much quantity it wants w/o affecting the market price. Or in relation to a firm; the firm has no influence over the market priceof its product and treats the price as a given.

Consumer Surplus:  The area under the demand curve but above the price. It is the top triangle. The consumer surplus shows the difference between what the consumer would be willing to pay and what the consumer actually has to pay over the relevant range of output.

Producer Surplus:  The area below the market price but above the supply curve (bottom triangle). This measures the difference between the actual price received by the seller and the required price reflected in the marginal costs of production. The sum of the consumer surplus and producer surplus captures the total net gains from trade to both consumers and producers.

Comparative Static Analysis: The model to study changes in price and quantity referred to as comparative static analysis. This analysis examines how changes in market conditions influence positions of the demand and supply curves and cause the equilibrium levels of price and output to adjust.

Own price elasticity of demand: Is a measure that gauges the extent to which consumers alter their consumption of a good or service when its own price changes.

inelastic:  e.g., Matzah, during passover the price will rise but Jewish people will still purchase no matter what the price is. e.g., Water.

Perfectly inelastic: e.g., human heart for a person that needs a transplant of the heart. The price may increase or decrease but it does not afffect the number the human hearts the patient will purchase. He will only purchase one human heart., no matter how low the price is.

Perfectly elastic: paper clips: Quad D makes paper clips and it has other competitors that make the same run of the mill paper clip. Well Quad D decides that they want to lower their price by just a tad and the buyers buy more of their clips. Later, they decide to increase the price by just a tad and then no one buys their paperclips and buys paper clips from Quad D's competitors.

income elasticity of deman: the extent to which the quantity demanded changes with change in income.

cross price elasticity:  measure the extent to which the demand for a product changes when the price of another good changes. e.g., eye glasses and contact lenses: when the price for contact shoots very high in price people demand more pairs of eye glasses.

1. # of buyers 2. consumer tastes, preferences 3. income 4. prices of substitutes or complements 5. expectations When the demand increases the curve shifts to the RIGHT KNOW CHANGE IN QUANTITY CAUSES MOVEMENT DOWN THE DEMAND CURVE

1. # of input prices 2. technology 3. Expectations When supply curve increases it shift to the RIGHT.

NORMAL PROFIT:  when there are just enought revenues to cover opportunity costs of each input  including normal return to capital.

marginal revenues:  the additional revenues received from selling one more unit of a good

Learning by doing: firms gain more experience over time as they make more product. they make more and the costs less to make more etc

LIMIT PRICING : pricing to deter a firm from entering the industry.

rationally ignorant:  when people choose to be less than perfectly informed because the marginal costs of additional information outweigh the benefits

mutual interdependence:  in an oligopoly there are relatively large firms involved and the characteristic that one firms decision affects another firm is a characteristic shared by an oligolpoly.

Collusive oligopoly: when firms cooperate together, rather than compete against one another to make more profit, by collectively acting as monopolists

Competitive oligopoly: it is the opposite of collusive oligopoly. they work competitively and firms have an incentive to reduce their prices to marginal cost. One firm's product is a strong sustititue for the other's product.

Conjectural variations: when one firm think about how the other firm will react to its own price and output decisions.

bounded rationality: refers to the limited ability of human behavior to solve complex problems.

RPM: this is a dimension of the market. The RPM considers of of all the market goods and services that buyers may switch to if the price is raised by a non-trivial amount. If the items are purchased thant they are considered as  part of the same RPM

market concentration: how many firms there are, the size and the distribution of the firms

SID: hypothesis that believes that physicians abuse their roles as medical advisors to advance their own self economic best interests

SMALL AREA VARIATIONS: differnce in medical service consumtion in urban and rural areas.

pRIVATE PRACTIVE UTILIZATION: use to explain variation in utlization rates across regions

DISEASE MANAGEMENT

DISEASE MANAGEMENT: improving patient satisfaction and containing costs

DEFENSIVE MEDICINE: to over utilize medicine and medical services by physicians to stave off medical malpractice suits brought on against them.

DAMAGE CAPS: involves setting a monetary limit on the amount a plaintiff can be awarded in a med mal suit

HMO: combines the financing and delvery of services into one organization.

GROUP MODEL: HMO

GROUP MODEL- HMO: hmo provides physicians services through contracting with a group practice

This refers to the intensity of the competition that currently coexists among firms in the industry. What are the factors that influence actual competition are the number and size of distribution of the existing firms , the degree of product differentiation, and the amount of information consumers process.

quantity maximization: Hospital reduces the cost for patients to tay in the hospital but increases the cost for pharmaceutical services and the hospital breaks even but has more patients utillity maximization model to explain the not for profit hospital behavior

QUALITY MAXIMIZATION: manager's of hospitals maximize utility by enhancing their status or prestige . Managers constantly try to increase the quality by increasing the status of their hospital in the community. Increasing quality drives medical costs up and this cost will be passed on to the patient. This theory agrees that introduction of technology is to improve status; defensive purposes. Utlity maximization model

Quality and Quantity Maximization:   Quantity and Quality are inversely related. If you are going to increase the quality, you will need to compromise the amount of services you provide. Managers of not for profit hospitals must determine what mixture of quality and quantitiy they want to go with for their hosptial Utlity maximization model

3 types of utlitization reviews?

Agency Theory

1. The extent to which the government is involved 2. Uncertainty or incomplete information 3. assymetric knowledge 4. externalilties:  positive and negative externalities arise wieh one persona's actions create benefits or impose costs on others. Communicable diseases. High n# of not for profits

Cost benefit - net benefit analyis: Looks at expected benefit - exected cost = Net benefit Easiest thing to quantify is medical costs. This type of analysis discounts: 1. cost and beneefits decisions accrue over time rather than all at once 2. benefit received today has more benefit than benefits received in the future 3. Net benefit must be eexpressed in terms of present value 4. Interest rate

Fuzzy Demand Curve/ Derived Demand Curve

What are the determinants of elasticity? 1. Consumer budget 2. Time horizon 3. Medical care generally a necessity but...(e.g. primary care is inelastic) other care not so much more elastic 4. Availablity of close substitutes

ADVERSE SELECTION

when a person purposely withholds information that they are unhealthy in order to avoid being penalized for it and then later on to secure the low risk premium. People get higher premiums in the group that are healthy and they decide to bail from their plan and find another plan with a lower premium. And this leads to an unstable market. It is said that plans that use community ratings, and cross subsidization this adverse selection occurs.