Priceelasticity of demand refers to the changes in demand of a product as a resultof a change in price at a specific period of time ceteris paribus. It is computedby dividing the percentage change in the quantity demanded of a product by thepercentage change in price i.e. (% change in quantity/% change in price). Economistsuse the midpoint method of elasticity to calculate price elasticity of demand.%change in quantity= Q2-Q1 divided by (Q2+Q1)/2 then multiplied by 100 while%change in price=P2-P1 divided by (P2+P1)/2 then multiplied by 100.
Elastic demandrefers to a case where elasticity is greater that one implying a product’s demandis significantly affected by changes in price. An inelastic demand is one inwhich elasticity is less than one signifying that demand for the product waslittle affected by price change. Unitary elasticity of demand signifies proportionalchange in demand in relation to price change. Thereis high likelihood of the price elasticity of demand for healthcare to varywith health status since it will depend on the services being sought by apatient. In general, it has been demonstrated that demand for healthcare is inelastic.For instance, in a case of a patient with life threatening conditions or whosehealth is deteriorating, the patient will largely be insensitive to the cost ofcare. Nonetheless, the presence of substitutes influence price elasticity becausesubstitutes more alternatives to the patient.
If a patient can access more substitutesthat can improve his or her health status, an increase in price will lead topatients seeking an alternative that would equally enhance their health status.Health status can be improved by seeking inpatient or outpatient services thathave no substitutes thus healthcare demand is inelastic. However, preventivecare and pharmaceutical products have several substitutes that patients can useto improve their health status; thus, their price elasticity is elastic. As pricesof preventive care and pharmaceutical products increase, patients will opt for substitutesthat are less costly.
Animprovement in educational attainment in the community would imply a decreasein the demand for health care. The inverse relationship between level ofeducation and demand for healthcare has also been proved in a number ofstudies. People who attain high level of education tend to be healthier thusdecreased demand for health care. Education increases exposure therefore anindividual with a high level of education is more adroit at identifying developingillnesses at an early stage. Consequently, they will either receive early treatmentor even adopt a different lifestyle thus avoiding the ailment. Furthermore, ithas been established that people with higher levels of education tend to smokeless, avoid taking alcohol or exercise restraint in drinking and exercise moreoften.
They also tend to eat healthier food and balanced diet. As a result,there is less demand for health care. Themacroeconomic data indicating higher income elasticity for health care implieshealth care is a superior good.
A superior product is a good or service thatrecords increased demand when there is an increase in income. The incomeelasticity of demand for such a product is positive and greater than 1. On theconverse, a normal good has an income elasticity of demand equal to or lessthan one but greater than zero. When there is an increase in income, there isincreased demand for both superior and normal goods i.
e. the demand curveshifts to the right. The main difference is that superior goods have an income elasticityof demand greater than one i.e.
an increase in income leads to considerable increasein the amount of superior goods demanded compared to the increase in demand fora normal good as depicted by higher income elasticity for health care. People desireto be happier and healthier thus an increase in income leads to higher demandfor healthcare for regular. Timecosts in health care encompasses time taken traveling to see a doctor, waitingtime before seeing a doctor, time spent during tests and treatment, takingmedication, seeking medical care for other people as well as settling medicalbills. The above factors are collectively referred to as opportunity costs oftime. Opportunity cost is defined as the foregone value of an alternative when achoice is made. For instance, when visiting a physician, one foregoes thehourly wages that would have been earned if you were working. Conversely,promise for a longer better life after the doctor’s visit compensate for the earningsthat were lost. Timeis indeed more costly for patients with higher wage rates.
This arises from thehigher opportunity cost of time that higher wage earners experience. For instance,if there are two patients, one earning 35 dollars per hour and the other earning15 dollars per hour, and both are seeking healthcare, they cost of time is higherfor the patient with a higher hourly wage. For every minute spent seekinghealthcare, the patient with the higher wage loses 0.58 dollars which is morethan double compared to time cost for the patient earning the relatively lowerwage.