Question

Consider two hypothetical market areas of approximately the same size and level of demand for health services whose effective demand—the aggregate (quantity) of healthcare service that customers/patients are actually buying at the current market price—is nonetheless different. Specifically, what factors do think may determine the effective demand for the two areas. Apply the following parameters to the respective service areas related to the use of a private physician clinic:

Service Area	Service area A	Service Area B
Potential physicians’ visits	25,000	25,000
Percentage of Medicaid patients	5%	20%
Percentage of self-pay patients	5%	10%
Tradition of public health use	5%	15%
Existing physician relationship	25%	10%
Use of alternative therapies	10%	40%

Answer 1

The two markets of healthcare services are equal sizewise or from the aspect of effective demand. This maybe due to factors such as:

1. Although in area A the percentage of medicaid patients are less but the alternative options available are also less in number due to which there is an effective demand of health services in area A. For the area B the medicaid patients are more but they also use more alternative therapies due to which the effective demand of healthcare facilities of B equalises with that of A.

2. Area A uses more public healthcare facilities because of the decent relationship with the physicians whereas there has been a tradition of using public healthcare for area B due to which both the areas effectively demand for it.

3. All the factors such as the power to self pay for healthcare, accessing alternative options of healthcare, the tradition of using public healthcare determine the effective demand of a private physician clinic.