Question

Use the supply-demand framework to predict the factors that influence shortages and surpluses in healthcare services.

Answer 1

The healthcare services market works similar to the perfect competition mechanism and there can be cases of shortages and surpluses:

A shortage occurs when quantity demanded is greater than quantity supplied at current price.The persistent shortage is common in blood market, market of nurses and physician services market. Some shortages persist when government regulates price in terms of a price ceiling and price cannot rise to the market clearing level. One way to eliminate shortageis to reduce demand by making people wait in line and provide services to those who are willing to pay time as cost for the service.

A surplus occurs when supply is greater than demand at the current price level. In case of healthcare where insurance exist, a surplus exists because the reimbursement rate that supplier's recieve is inducing a greater supply than demand at a price at which consumer's pay out of pocket. A reduction in the supply occurs when physician lowers the price of services due to excess capacity which would lower the demand.