Question

Market Structure and the Determination of Market Price
To prepare for this Discussion:

• Identify an example of a health care good or service to explore for this Discussion. The following list of submarkets may guide your consideration, but you may select an example from a different area.
  • Physician services
  • Nursing services
  • Medical technician services
  • Physical facilities (e.g., hospitals, specialized, imaging, long-term care)
  • Medical technology
  • Pharmaceuticals

By Day 4, post a cohesive response that addresses the following:

• Describe an example of a particular health care good or service at the beginning of your posting.
• Analyze how you could shift the supply curve or the demand curve to affect the market price for your selected example.
• Evaluate the impact of two or three factors that could influence the extent to which the supply curve or demand curve could be shifted (e.g., competition, monopoly, availability of substitutes, production inputs and costs).

Answer 1

I am taking the example of a pharmaceutical drug for the study.

The supply curve of this pharmaceutical drug can be shifted if there is a tremendous increase in the production of that good. The firms may increase the production anticipating an incrased demand of that drug in the future. This will lead to an increase in the supply of that drug, a rightward shift of the supply curve as at any given price level, the supply of the drug has increased. This rightward shift of the supply curve, taking the demand curve to be constant will lead to a fall in price of that drug as there is excess supply than demand, so suppliers will have to decrease prices to increase their sales.

If say, suddenly there is an increased demand for that drug, i.e. more and more doctors are prescribing that drug, then it will lead to an increase in the demand for that drug. This increase in demand will lead to a rightward shift of the demand curve as at any given price level, the demand for that drug has increased. This rightward shift of the demand curve will lead to an increase in price of that drug as the demand has increased while the supply remains same, so people will be willing to pay higher prices in order to get that drug hence there will be an increase in the price of that drug.

Impact of factors that could influence the extent of shift of the supply or the demand curve.

1) Numbers of buyers and sellers in the market (Competition) : If there are a large number of sellers in the market, then an increased production of drug by one or a few firms will not shift the industry supply curve by a large amount. This will also not lead to a change in prices. If it is a perfectly competitive market then there will be no change in prices with increased supply as firms cannot determine prices as they are price takers.

Similarly if there are a large number of buyers in the market, then an increased demand by a few buyers will not shift the demand curve by large amount as few buyers cannot affect the industry demand curve. Also, there would be very less or no affect on the price.

2) Monopoly : In the monopoly market structure, there is only one seller in the market and hence he has complete control over the market supply curve. But it is not possible to draw a supply curve for a monopolist as a monopolist's supply decision depends not only on the price of the good but also on the demand curve. Hence his supply changes according to the demand fluctuations. Hence, the supply curve for a monopolist can't be drawn.

The demand curve under a monopoly market can change by huge extent as monopoly can charge any price as per his will and demand would change by large amount due to change in prices.

3) Input costs: when the input costs change too frequently and by large amounts, then the supply curve would also change accordingly by large amounts as supply decisions predominantly depend on input costs.

These are just a few factors which impact the extent of shift if supply or demand curve, other factors can also be analysed similarly.