MICROECONOMICTOOLSFORHEALTHECONOMICSEconomicsMicroeconomics:studythedecisionsofindividualhouseholdandfirm——GNPMacroeconomics:studytheeconomyasawhole—GNP,unemployment,andinflationHealthEconomicsUsemicroeconomicstoolsStudythedecisionsofindividualpatient,healthcareprovider,andinsurancecompanyTheProductionPossibilitiesFrontierPPFDifferentmaximumoutputcombinationsofgoodsorservicesthatcanbeobtainedfromafixedamountofresourcesTrade-offThechoicebetweenalternativeusesforagivenquantityofresourcesOpportunitycostThebestalternativeforgoneTheProductionPossibilitiesFrontierOnlytwogoodsproducedHealthGoodsOthergoodsHealthGoodsOtherGoods020118215311465005101520250246TheProductionPossibilitiesFrontieri.A100001B7502501C5005001D2507501E010001E1000ABCDE10000750500250750500250TheProductionPossibilitiesFrontierii.1000AF10000BCDE200400600800980917800600A10000--B9802000.10C9174000.32D8006000.92E6008001.00F010003.00E0.535Theschedulebelowdescribesahypotheticalproductionpossibilitiesbetweenhealthandallothergoods.a)Drawtheproductionpossibilitiescurve.b)Calculatetheopportunitycostofhealthandothergood.Listthemateachoutputgiveninthetable.c)Whydoestheopportunitycostincrease?d)OnthePPFcurve,findapointtoshowthatthiseconomyismoreemphasisonhealthproduction.HealthGoodsOtherGoods02722441861080DemandDemandTherelationshipbetweenquantitydemandedanditspricesQuantitydemandedTheamountthatconsumersplantobuyduringagiventimeperiodataparticularpriceTheLawofDemandOtherthingsbeingequal,thequantitydemandedofagoodorservicevariesinverselywithitspriceMarketDemandthesumofalltheindividualdemandTheLawofDemand024681012140510152021741461188105122Q=201.5PDemandFactorsthatchangedemandTastesandpreferencesIncomenormalgoodinferiorgoodPricesofrelatedgoodsandservicessubstitutescomplements#ofbuyersInsuranceExpectationPQDD’’D’SupplySupplyTherelationshipbetweenquantitysuppliedanditspricesTheLawofSupplyThequantitysuppliedofagoodandservicevariesdirectlywithitspriceMarketSupplythesumofalltheindividualsupplyTheLawofSupply0246810121405101520.54365.5881010.51213Q=21.25PSupplyFactorsthatchangesupplyTechnologicalprogressPricesofinputsPricesofrelatedgoodsorservices#ofsellersExpectationSPQS’’S’MarketEquilibriumEquilibriumpriceThepriceatwhichthequantitydemandedofagoodorserviceisexactlyequaltothequantitysupplied0SDP*=8Q*=8Q=20-1.5PQ=-2+1.25PP*=8Q*=8MarketEquilibriumSurplusQuantitysuppliedexceedsquantitydemandedP1PQ0SDQ1Q2Q1-Q2MarketEquilibriumShortageQuantitydemandedexceedsquantitysuppliedPQ0SDP2Q2Q1Q2-Q1MarketEquilibriumChangeinEquilibriumChangeindemandD’’PQSDD’MarketEquilibriumChangeinEquilibriumChangeinsupplyS’’PQSDS’MarketEquilibriumChangeinEquilibriumChangeinbothdemandandsupplyD’S’PQSDMarketDisequilibriumPriceceilingslegalmaximumpricethatmaybechargedforagoodorservicethereisashortageinthemarketQD0SPQ2P2P1Q1MarketDisequilibriumPricefloorslegalminimumpricethatmaybechargedforagoodorservicethereisasurplusinthemarketPQ0SDP1Q1P2ElasticityThepriceelasticityofdemandMeausretheresponsivenessofthequantitydemandedofagoodtoachangeinitspriceep=(∆Q/Q)/(∆P/P)1Elasticity1,elasticitmeansthepercentagechangeinquantitydemandedislargerthanthepercentagechangeinpriceElasticity1Elasticity1,inelasticitmeansthepercentagechangeinquantitydemandedislessthanthepercentagechangeinprice=1Elasticity=1,unitelasticitmeansthepercentagechangeinquantitydemandedequalsthepercentagechangeinprice=Elasticity=Infinite,perfectelasticitmeansthatconsumersareverysensitivetothepricechange=0Elasticity=0,perfectinelasticitmeansthatconsumersareveryinsensitivetothepricechangeElasticity0.816040%Supposethepriceelasticityofdemandforteethcleaningis.8andthereare1.6millioncleanedperyear.Ifanationalhealthinsurancepays40%ofthecostofcleaningteeth,howmanyteethcleaningswouldtherebe?ElasticityTheincomeelasticityofdemandMeausretheresponsivenessofthequantitydemandedofagoodtoachangeintheconsumer’sincomeey=(∆Q/Q)/(∆Y/Y)Elasticity0Elasticity0,normalgoods0Elasticity0,inferiorgoods1Elasticity1,luxuryElasticityTheincomeelasticityofdemandMeasuretheresponsivenessofthequantitydemandedofagoodtoachangeinsomeothergood’spriceeAB=(∆QA/QA)/(∆PB/PB)Elasticity0Elasticity0,substitutegoods0Elasticity0,complementarygoods