Question

1. Explain 2 reasons why the supply of physician services is highly inelastic in the short run.

2. Explain why the supply of physician services becomes more elastic over the longer term.

3. Explain how physician-induced demand undermines efficiency in the health care industry.

4. Explain how insurance affects the extent of physician-induced demand.

Answer 1

1. Answer: The two main reasons of highly inelastic physician services in the short run are explained below.

a. One reason may be that patients in the short run cannot shift immediately to another physician as there is few number of Physicians for some deases. Because, physician service is most important to recover from any disease in the short run.

b. In the short-run patients go to the physician for some short term diseases. To get relief from short term diseases, immediate services are important. For which people should go to the physician, although they charge higher prices.

2. Answer: In the long run the supply of physician services become more elastic because:

a. Large number of Physician: In the long-run more number of physicians entered in the market for various diseases for which monopolistic competition arises in the physician services. If any physician charges a higher price then people will go to another physician to get services.

b. Technological Development: Another important reason is that in the long run, better technology may come on the market that will help to get better services immediately. Therefore, In the long run supply of Physician services become more elastic.

3. Answer: Physician Induced demand mainly indicate taken care of physical health, according to the interest of a physician. This type of induced demand will undermine the efficiency in the health care industry, because, the physicians will work for a similar kind of diseases and more vulnerable diseases. Due to which some other kind of diseases will exist as untreated and no treatment may be available for some diseases. Thus, physician-induced demand is unhealthy for health industries.

4. Answer: Availability of health insurance is an important constraint in the case of physician-induced demand. If a patient or any family purchase health insurance policies, then, the will minimize the access to the physician. Because, health policies will secure their life from severe diseases. As far as the access to health insurance policies increase, people will reduce access to the physician. The health insurance policies reduce the tensions and time that a person spent in taking care from a physician.