Question

Submit your responses in the Discussion Area for Economiics of Healthcare

You are advising the stakeholders of a small firm that is one of a handful of manufacturers of disposable contact lenses, wetting solution and other products related to eye care. The stakeholders are wrestling with a proposal to implement a price increase for some, all, or a large number of their products. They all agree that doing so can help offset recent cost increases the firm has experienced, but there the agreement ends.

Some favor a small price increase for products across the board, noting that, from the standpoint of the market, demand for healthcare products is relatively inelastic. Others believe that strategy could backfire, hurting more than helping. Instead, they argue, there are a number of factors to consider—the strength of the economy, their competition, trends in the market for specific types of products, and so on. They believe, therefore, products or types of products should be considered on a case-by-case basis: while a price increase for one product might yield positive results, a price increase for another might wipe out any gain achieved by the first.

What would you say to these stakeholders? Formulate your advice, drawing on course readings, other scholarly sources, and the concept of healthcare price elasticity.

To support your work, use your course and textbook readings and also use the South University Online Library. As in all assignments, cite your sources in your work and provide references for the citations in APA format.

Your initial posting should be addressed at 150-300 words. Submit your document to this Discussion Area by the due date assigned. Be sure to cite your sources using APA format.

Respond to your peers throughout the week. Justify your answers with examples, research, and reasoning. Follow up posts need to be submitted by the end of the week.

Answer 1

                                Healthcare Price Elasticity

Healthcare products like other normal products in the market, do obey the law of demand. Demand for healthcare products tends to be at its maximum level when they are provided for free This implies that sensitivity of healthcare to price has to be treated with great care when setting up prices for the related products. Although healthcare products have an inelastic demand, this does not guarantee profits to a firm manufacturing healthcare products when settings its prices for the products. Numerous factors have to be put into consideration before setting prices for a new product or adjusting prices for those already in existence. Such factors include but not limited to competition, economic status, trends in the market, government policy among others.

There are several types of elasticity to evaluate before price adjustments. These are; price elasticity, income elasticity and cross-price elasticity. Price elasticity considers the change in the quantity of a given product demanded to result from the change in the product's price. In respect to healthcare, demand is price inelastic. Income elasticity, on the other hand, measures the responsive change in quantity demanded of a given commodity concerning a change in the level of consumers' disposable income. Healthcare has income inelastic demand. On the hand, cross-price elasticity of demand measures the changes in demand for a given commodity due to changes in the prices of related commodities. This kind of elasticity is of great concern to any given firm when it comes to adjustment of prices.

For a manufacturing firm producing healthcare products, cross-price elasticity impact can generate externally or internally. This impact comes about due to the inter-relationship between products as either substitutes or complementary. In case a firm is producing substitute products, price changes should be uniform, or else one will be viewed as more expensive hence, it’s likely to experience a drop in its demand. Contrary, if the substitutes are from competitors, then price changing decision should consider the competitors’ moves concerning to price changes.

Complimentary products are used alongside each other. A change in the price of one is more likely to affect the demand of another even without a change in the latter's price. Before the management decides on price changes, it should consider the relationship between products. State of competition in the market regarding product quality, pricing, preferences and tastes of consumers should be checked so as to keep in line with the market trend. For a sustainable competitive advantage, a firm should have superior products to enhance its stability in the industry. Economic state is also an important aspect not to be overlooked when it comes to pricing.Prices should be affordable to the households; otherwise they might keep away from them. In cases where prices are set by external authorities, a firm has no power to set their prices as such could be treated illegally.

In conclusion, such a firm should not increase prices on products across the board but instead analyse every product and predict effects of each increase on individual products to enable them to take necessary precautions against impacts that may come to harm the company. An advantage can be taken on those products that don’t reflect devastating impacts on future demand so as to cater for the current cost increase.