Supply and demand plays a large role in health economics.
If the supply is not enough to meet the demand of health goods and services, or vice versa, market failure can occur. When discussing health economics, goods and services can include anything from prescription drugs to an open hospital bed. Demand depends on factors such as a shift in price of goods, income of consumers, quality of services or goods, and knowledge of available health goods or services. Supply depends on sale prices, changes or improvements in technology, number of sellers, as well as input costs that go into making a product or service available to the public.
Similarly to any other market, suppliers in these scenarios aim to maximize profit in a competitive market. One example of this is the way health insurance works in the United States. In the U.S, health insurance often allows a consumer to pay less for health goods and services. Supply and demand has an effect on the way health insurance works in the U.S because insurance companies begin to compete with one another, as they have financial incentive to alter the consumption of healthcare goods and services by encouraging or discouraging consumers from making certain decisions regarding their health.
For example, providers may recommend against particular treatments, or do the opposite by encouraging patients to seek excess care in order to increase their income from the patient. Medical transactions differ from other transactions in that there are more than two parties involved. Patients, health care providers, and insurance providers make up most transactions. Unanticipated needs due to illness or injury that could not have been predicted make it difficult for suppliers to know in advance what the demand will be for various goods and services. Because of this, it is even more difficult to price these items far in advance as well. Estimating cost becomes complicated in this way, meaning that the healthcare market is not entirely based on financial competitiveness. While producers can still control supply power, consumers do not have perfect info regarding healthcare and treatment, and unpredicted injury and illness makes it difficult to maintain information regarding the public.