Inelastic Demand In Health Care

Decent Essays
In relation to the hypothetical scenario, the behaviour is not consistent with that of the real world. Although people are coming to the hospital for services there is a loop as the public hospital’s responsibility to pay for treatment. The hospital demands the goods. Supply on the other hand is fixed, the supply is the money (140k). Which would indicate that supply is perfectly Inelastic, when there is any increase or decrease in the price of a good or service does not result in a corresponding increase or decrease in its supply. Hypothetically, the supply is fixed because if the hospital has a limited amount of resources.

Given that healthcare is a merit good, basic health services are free within Australia. This however means that the price mechanism cannot work to ration scarce resources like it does in the private sector. However in this case, having no price (people get it for free) means that there will be a shortage, given that demand will be at a maximum. It means that the resources of the hospital must be rationed through some other system, such as waiting lists. In the short run the supply of our hospital is fixed at $140,000, and the supply curve is perfectly inelastic.
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Even with the presence of the positive externalities related to consumption of health care, people are continually pushed out of market due to high prices. Demonstrating a classic example of a market failure, as the market fails to allocate resources effectively. The rising cost of health insurance leads more consumers go without coverage and accompanying rise in the cost of health care expenses has then led health insurers to provide more policies that make the consumer pay more and more. An almost never ending
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