ECO 605 Discussion 1.2: Price Elasticity of Demand
ECO 605 Discussion 1.2: Price Elasticity of Demand
Price elasticity of demand helps measure the relationship between price and quantity demanded (Hicks, 2021). Price elasticity identifies what the demand for a good or service is when the price is changed. When a price is elastic, that means that the absolute value is greater than one and the quantity demanded is responsive to price changes (Hick, 2021). With that said, when there is a price change, it is to be expected that there will be a change in the quantity demanded. Unlike price elasticity, inelastic demand is defined as the absolute value that is less than one (Hick, 2021). On a graph, an inelastic demand curve is steep and demonstrates that a price change will cause little change to the quantity demanded. The first thing that came to my mind when considering price inelasticity is PPE. When looking at the definition of price inelasticity, price does not affect the amount of PPE needed in the healthcare industry. Specifically now as we face COVID-19 and the omicron variant, I believe that regardless of the price, consumers (in this case healthcare institutions) will still need a constant supply of PPE. Therefore, the price difference does not change how much will be purchased because its necessary equipment that is utilized by healthcare workers. I elaborate on this example because I find it unique to the healthcare crisis many of us are facing now and it is relatable on many levels. An example of price elasticity is Lasik eye surgery. Many manage their vision changes can be maintained with glasses, eye drops, and contacts. However, if there was a change in the price of Lasik eye surgery, it could be expected that there would be a change in the quantity demanded. While many know about Lasik, not all individuals are able to afford it. If this procedure becomes more affordable, the increase in quantity demanded will increase. Understanding price elasticity and inelasticity helps bring to light how the other industries related to the healthcare field. Pharmaceutical companies, insurance providers, and the price of healthcare are all interrelated aspects that contribute to the price elasticity of demand. Looking at my career right now, my focus is ensuring that my patients receive the care needed to get well and return to normal functioning. As I transition to becoming a healthcare provider, I think understanding these concepts will allow me to better understand how patients (consumers) dictate the quantity demanded.
References
Hicks, L. L (2021). Economics of Healthcare and Medical Care. (7th ed). Jones & Bartlett Learning
- Define price elasticity of demand
This is from the buyer side of the market where the response to price changes, increases or decreases, effect the demand of the market service or product.
- Explain what it means if a product is price elastic or price inelastic.
If a product is price elastic, then demand will be effected by price changes. It is shown by a flatter horizontal line on a graph because small changes in price will become large changes in the demand for the product. This is symbolized as Ep>1 (in absolute value).
If a product is price inelastic, then demand will not be affected by price changes. This is symbolized as Ep<1 (in absolute value) and the demand is not responsive to changes in product or service prices. On a graph it will be a steep demand curve.
- Next, give an example of some medical treatment, drug, or device that is price elastic and an example of one that is price inelastic.
An example of an inelastic product is the generic medication provided intravenously called fluorouracil (5FU), a cytoxic medication provided slowly over time for multiple cycles and used for different cancer regimens (breast, colon, pancreatic, stomach) both as inpatient and outpatient. Why is it considered inelastic? 5FU is an example of an inelastic product because there are no current substitutes for this medication, is the generic name for Adrucil, provided for specific intravenous regimens like FOLFOX and FOLFIRI to reduce the growth of cancer cells. No matter what the cost is, its demand will remain relatively stable.
An example of an elastic product would be aspirin or toothpaste. For instance, even if one were brand name sensitive, such as Colgate or Bayer, the demand for either would be effected if one form was advertised as a bogo deal for the week in a generic format and increase purchases for it today by buyers of toothpaste or aspirin.
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Hicks, L. L. (2021). Economics of health and medical care. (7th ed.), Chapter 4, pp 52-54. Jones & Bartlett Learning. ISBN-13: 9781284183535
“Price elasticity attempts to measure responsiveness when the only factor undergoing change, and thereby influencing the quantity demanded, is price,” (Hicks, 2021). Price elasticity measures in magnitudes, not in currency. It is how consumers respond to a change of price. A product is considered price inelastic when the quantity demanded does not change much with price fluctuation. On the other hand, a product is considered price elastic when the quantity demanded changes with price.
An example of price inelastic is the use of CT scans. From experience, the cost of imaging via CT scans does not increase or decrease the use of CT scans. The price does not deter patients much. An example of price elastic is brand name drugs. For example, buying the brand Benadryl will be more costly than buying a substitute. So instead of buying Benadryl, the consumers result to just buying an off brand that has Diphenhydramine.
Reference
Hicks, L. L. (2021). Economics of health and medical care. (7th ed.). Jones & Bartlett Learning.
ISBN-13: 9781284183535
Discussion: 1.2
The price of elasticity of demand refers to the degree of change in demand when there is a change in the price of the good or service (Hick, 2020). Products can either be elastic or inelastic. When products are elastic it means there was a significant change in demand when the price of that product changed, therefore the buying habits of the consumer are changed (Hicks, 2020). When products are inelastic it means there was no significant change in demand when the price of that product changed (Hicks, 2020). Therefore, the buying habits of the consumer are unchanged.
An example of an elastic medical service would be elective cosmetic surgeries and procedures, such as laser hair removal. Laser hair removal is elective and can be substituted with other methods to remove hair. Therefore, it becomes elastic. An example of an inelastic medical service would be an emergency surgery, such as the removal of an appendix due to rupture. This surgery is an unavoidable life-saving medical procedure. Due to the procedure being unavoidable, it makes it inelastic.
Hicks, L. (2020). Economics of Health and Medical Care. Jones & Bartlett Learning. https://reader.yuzu.com/books/9781284219296
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