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Outline the concept of price of elasticity of demand. Discuss ways in which an understanding of these price elasticity concepts would be useful to health care market.

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Introduction

Outline the concept of price of elasticity of demand. Discuss ways in which an understanding of these price elasticity concepts would be useful to health care market. (1500 word maximum) Businesses know that they face demand curves, but rarely do they know what these curves look like. Yet sometimes a business needs to have a good idea of what part of a demand curve looks like if it is to make good decisions. If Pepsi Coca raises its prices by ten percent, what will happen to its revenues? The answer depends on how consumers will respond. Will they cut back purchases a little or a lot? This question of how responsive consumers are to price changes involves the economic concept of price elasticity. Therefore the first aim of this essay is to outline the concept of the price elasticity of demand. It will be focused on 3 aspects, first, definition of the price elasticity of demand, second, elastic versus inelastic, and finally some factors influencing the price elasticity of demand will be interpreted. Also in this essay, it will be discussed that the price elasticity of demand in health care market. The price elasticity of demand measures the responsiveness of quantity demanded to change in price, with all other factors held constant. ...read more.

Middle

* Degree of necessity or luxury: luxury products tend to have greater elasticity than necessities. Some products that initially have a low degree of necessity are habit forming and can become "necessities" to some consumers. * Proportion of income required by the item: products requiring a larger portion of the consumer's income tend to have greater elasticity. * Time period considered: elasticity tends to be greater over the long run because consumers have more time to adjust their behavior to price changes. * Permanent or temporary price change: a one-day sale will result in a different response than a permanent price decrease of the same magnitude. * Price points: decreasing the price from $2.00 to $1.99 may result in greater increase in quantity demanded than decreasing it from $1.99 to $1.98. Now to better understand the price elasticity of demand that the demand of health care market is a good example. Individuals make choices about medical care. They decide when to visit a doctor when they feel sick, whether to go ahead with an operation, whether to immunize their children, and how often to have checkups. The process of making such decisions can be complicated, because it may involve accumulating advice from friends, physicians, and others, weighing potential risks and benefits, and foregoing other types of consumption that could be financed with the resources used to purchase medical care. ...read more.

Conclusion

As a result, when the price of care increases, consumers are able to substitute away from preventive care toward other goods and services that promote health such as nutritional supplements and healthy foods. In addition, preventive medical services may be seen more as a luxury than a necessity and, thus, may be put off when the price of such care increases. Further, the opportunity cost of obtaining preventive care is much higher than it is when the patient is sick, particularly if the illness keeps the individual out of work. It is also likely, that since the benefits of preventive care accrue in the long-term, they are heavily discounted. To conclude this essay that the elasticity of demand is a measure of the responsiveness of product demand to changes in one of its determinants. The demand determinants for which elasticity measures are typically computed are the price of the good or service, the income of the consumer, and the prices of related goods or services. Elasticity measures are particularly useful because they focus on the relative magnitudes of changes rather than the absolute. As such, elasticity measures are free of units of measurement. This characteristic makes them particularly useful for comparing demand responses across products, countries, and individuals. Also in this essay, in order to better understand the price elasticity of demand, the health care market has been made as a example in discussed ether it is a inelasticity of elasticity. ...read more.

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