Understanding Demand for Health Care: Utility Analysis Explained
School
American Public University**We aren't endorsed by this school
Course
PBHE 315
Subject
Economics
Date
Dec 12, 2024
Pages
2
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Please answer the following questions regarding the demand for health care.In your own words use utility analysis to explain why people demand health. How does the Law of Diminishing Marginal Utility fit into the analysis?How would you expect the price elasticity of demand for medical care to vary with health status? Give a specific example.Good Morning class and Professor,Utility analysis in economics helps us understand why people demand health in terms of the satisfaction or utility they derive from being healthy. Health is directly related to an individual's well-being and quality of life, influencing their ability to enjoy various activities, maintain productivity, and avoid pain or discomfort.The demand for health can be explained using utility theory, where individuals seek to maximize their overall utility or satisfaction. Good health contributes significantly to this utility because it allows people to function effectively, pursue their goals, and enjoy life more fully. As health improves, the marginal utility derived from additional health increases, reflecting the greater satisfaction or benefit gained from each unit of health improvement.The Law of Diminishing Marginal Utility applies to health in the followingway: as individuals improve their health from a lower initial level, the marginal utility of additional improvements decreases. For example, someone recovering from a serious illness experiences a significant increase in utility with each milestone towards recovery, such as regaining the ability to walk, return to work. However, as their health continues to improve, the additional utility gained from each subsequent health improvement diminishes, for example, going from walking comfortably to jogging has less impact than going from bedridden to walking.Regarding the price elasticity of demand for medical care, it varies with an individual's health status. Price elasticity of demand measures the responsiveness of quantity demanded to changes in price. When someone is in good health, they might perceive medical care as less urgent or necessary, leading to a more elastic demand curve. In contrast, when someone's health deteriorates or they face a serious medical condition, the demand for medical care becomes more inelastic because the need for treatment becomes more critical and less sensitive to price changes. For example, consider a healthy individual
who needs routine check-ups and preventive care. If the price of these services increases, they may choose to skip some appointments or delay non-urgent treatments, making their demand relatively elastic. Onthe other hand, if the same individual develops a chronic illness requiring regular medication or specialist visits, they are more likely to continue seeking care despite price increases, indicating a more inelastic demand.