Question

Paul is a 50-year-old healthy taxi driver in Boston. One day, after celebrating his son's birthday with a special meal out in a restaurant, he developed severe chest pain. At first, he thought it is just a digestive issue from the spicy meal. However, the pain became so severe that he had to be hospitalized in a public hospital, which provides free emergency care. He was first examined by an emergency physician, and subsequently by a cardiologist, who diagnosed Paul’s pain as angina. In the short term, Paul would need heart bypass surgery, which has a 90% chance of success, and in the longer term, he will have to adjust his diet and lifestyle to remain healthy. While Paul has some health insurance, he is unsure what it covers, and what treatments he can afford.

In this example, can you identify the differences between the markets for common consumer goods (purchase of a meal in a restaurant) and for health care? Clearly highlight the differences between the two markets in terms of resource allocation, nature of demand, financing, and entry barriers.

Answer 1

S. No.	Dimension	Common consumer goods	Health care
1.	Resource allocation	Depends explicitly on demand function (prices, income, fashion, availability of substitutes / complements, etc.) and supply function (prices, costs. etc.)	Generally financed through consumers’ savings. Product pricing by suppliers done through elaborate actuarial processes.
2.	Nature of demand	Regular or planned (on an average)	Depends on risk profile of consumer: risk aversion, risk neutrality or risk taker.
3.	Financing	Private financing available. Government subsidies also available for necessaries.	Generally financed through consumers’ savings. Basic social security also provided by Governments.
4.	Entry barriers	Generally, less entry barriers on supply side. These entry barriers are more technical and simpler easier to comply with. For eg., food license for selling eatables.	Stringent entry barriers on supply side in terms of regulatory approvals, reporting and monitoring. These comprise financial due diligence, networth requirements and promoters background check as failure to service financial products like medical insurances could have a dominos effect on the community.