Demand Changers
Consumers, whether an individual, firm, or country, purchase goods and services. Demand is the quantity of goods and services that a consumer is willing and able to purchase over a specified time. In the case of health care, for example, demand equals the total demand for healthcare goods and services by all the consumers in a given market.
Demand Changers
In general, as the price of a good or service increases, demand for that good or service will fall. Conversely, as the price of goods or services decreases, demand for those goods or services will rise.
Various factors in addition to price also increase or decrease the demand for a product. Insurance is an important factor relating to demand that is discussed separately later in this chapter. A few of the other factors that may change the demand for a product include the following:
- Consumer’s income:As a consumer’s income increases, demand for a product may increase. For example, a consumer may desire a new pair of eyeglasses but cannot afford it. Once the consumer’s income increases, the consumer can purchase the eyeglasses.
- Quality:Consumers have preferences based on quality, both actual and perceived. In addition, a change in quality will likely result in a change in demand. A decrease in the quality of a product may result in a decrease in demand because consumers decide the product is no longer worth the price charged. For example, a consumer may discover that the eyeglasses he or she wants fall apart easily, thus may decide not to buy the product.
- Price of substitutes:A substitute is a different product that satisfies the same demand. For example, contact lenses may be a substitute for eyeglasses. As the price of contact lenses drops, a consumer may decide he or she prefers contact lenses to eyeglasses.
- Price of complements:A complement is a product associated with another product. For example, cleaning solution is a complement to contact lenses. The price and quality of cleaning solution (the complement) may be an important factor when a consumer is debating whether to keep wearing glasses (the original product) or switch to contact lenses (the alternative product). If the price of cleaning solution increases, even though the price of contact lenses stays the same, the consumer may decide to purchase eyeglasses instead of contact lenses. In other words, demand for complements and alternative products shifts in opposite ways, so an increase in the price of a complement will decrease the demand for the alternative product, and vice versa.
BOX 9-2 Discussion Questions
Consider each of the following issues and discuss whether you support Theory X, Theory Y, neither theory, or some combination of them.
| Issue | Theory X | Theory Y |
| Your view about how an individual’s health is determined | Whether a person is healthy or sick is determined randomly. | Whether a person is healthy or sick depends on lifestyle choices such as whether a person smokes, drinks, or wears a seatbelt. |
| Your view of medical practice | Medicine is a science, and experts will ultimately discover the best means for treating every illness. | Medicine is an art and there will never be one best way to treat every illness because illnesses are often patient-specific and because there will always be a demand for lower-cost and less painful treatments. |
| Your view of medical care | Medical care is a unique commodity. | Medical care is similar to any other good or service. |
| Your view of the government’s role in health care | Government regulations are necessary to protect this unique commodity, to control profiteering at the cost of patient care, to control resources spent on health care, and to improve information sharing. | Government regulations are not necessary, technological advances and more services are desirable, and competition, not regulation, should drive the market. |
| Source: From Musgrave, GL. Health economics outlook: two theories of health economics. Bus Econ. 1995;30:7–13. | ||
The physical profile of a consumer has an impact on demand for healthcare services in some predictable ways. Women generally demand more healthcare services than men do before reaching 65 years of age, primarily due to health needs related to childbearing, whereas men older than 65 years use more care than do women in the same age group. In addition, many diseases are more prevalent in women than in men, resulting in an expected increase in demand for health services by women. Some of these diseases include cardiovascular disease, osteoporosis, and immunologic diseases (Phelps, 2003, pp. 149–150; Senterre&Neun, 2004, p. 111). Regardless of sex, an individual who is born with a medical problem, or who develops one at a relatively young age, can be expected to have a higher than average demand for healthcare services. Aging consumers are more likely to have higher healthcare needs than younger consumers. Of course, any factor that usually leads to increases in demand for healthcare services may be offset by lack of financial resources or lack of access to providers.
In addition to the physical profile of a consumer, interesting research is being conducted in relation to consumers’ level of education and their demand for services. Although there is no consensus on the direct impact of general education on demand for health services, some studies show a positive relationship between medical knowledge and demand for healthcare services; that is, the more the consumer knows about medicine, the higher the level of consumption of healthcare services. This association may indicate that consumers without as much medical knowledge underestimate the appropriate amount of health services they need, or it may mean that consumers with more medical education have a greater ability to purchase medical care. Other explanations are possible as well (Agency for Healthcare Research and Quality, n.d.; Cutler &Lleras-Muney, 2006; Senterre&Neun, 2004, p. 127).
