Study Material on Healthcare Economics and Public Health

The study material covers MCQs, short answer questions, examples, and essay type questions on healthcare economics and public health. It discusses the demand and supply of drugs, out-of-pocket costs, price elasticity of demand, and the public good nature of healthcare. The bibliography includes sources on healthcare economics, public health, and health inequalities in Australia.

Contents
Part 1: MCQs...............................................................................................................................................1
Part 2: Short Answer Questions...................................................................................................................1
Part 3: Examples..........................................................................................................................................4
Part 4: Essay Type Questions.......................................................................................................................5
Bibliography................................................................................................................................................7

Part 1: MCQs
1) Home health care for the elderly may be costly because caregivers must spend time
providing care that they would have allocated differently.
2) 2. The share of health expenditure to indigenous people is Higher, on a per capita basis
compared to non-indigenous, given much poorer health outcome data.
3) Supplier-induced demand refers to All of the above
4) The asymmetry of information between health care consumers and providers explains
why health care providers may make decisions for patients and is one of the
explanations for market failure.
5) Society’s Trade-off between Guns and Butter Point Butter Guns. X= 40 units of butter
Part 2: Short Answer Questions
The demand and supply of the drug, given a free market, are explained in each of the situations
below. (Mankiw, 2008) Diagram Adapted from (Mankiw, 2008)
a) A change in technology that reduces the cost of manufacturing the drug
In the event that the cost of manufacturing the drug is reduces, the price of the drug will
decrease. This will lead to an increase in demand for drugs. In the long run, the supply may
change owing to a change in demand. The demand curve, thus, shifts, to the right.

Figure 1 Demand for Drug with a decrease in price
b) The availability of substitute leads to a decrease in the demand for the drug. Thus, the
demand curve shifts to the left. In the example below, the demand has shifted from
50,000 units to 30’000 units.

Figure 2:The Effect of the availability of a substitute drug on TB Drug
Figure 3: Effect of greater resistance among consumer on demand for TB Drug
As consumer resistance towards the drug increases, there will be a demand for new drug,
reducing the demand for the present drugs. The demand curve shifts to the left.

Figure 4: Effect of Increase in consumer’s ability to pay
An increase in Co-pay will reduce the consumer’s ability to afford or pay for the drug, in a
general level. Hence, the demand for the drug will decrease as some low income groups may
bot be able to afford the drug. Hence, The demand curve shifts to the left.
Part 3: Examples
i. Co-insurance: An example of Out-of –pockets costs in co-insurance is the gap fees for
doctors, surgeons, anesthesiologists that are billed above the threshold of payment decided by
the insurance plan etc. (Australian Unity, 2018)
ii. Deductible: An example of Out of Pocket deductibles are plans where an individual has to
pay a minimum amount out of their own pocket before the plan kicks in. Pregnant women
often have to pay booking charges for their doctor before the insurance is applicable. (Gunja,
Collins, & Beutel, 2016)

iii. Exclusions: Doctor visits and prescription drugs can often be considered as out-of-pocket
costs. (Australian Unity, 2018)
iv. Flat rate benefit: Travel health insurances typically tend to be flat rate insurance.
However, in such plans , pharmacy costs are not included. (Allianz Global Assistance, 2018)
Part 4: Essay Type Questions
Q4) ‘Price elasticity of demand’ is defined as the the “degree of responsiveness of a change
in demand to a change in one of its determinants while other determinants remain
unchanged.”
The demand for sugary drinks is would be expected to change as follows:
Price Elasticity of Demand = Percentage Change in Demanded Quantity / Percentage Change
in Price (Mankiw, 2008)
-0.95 = % Change in Quantity Demanded/ 25
-23.75 = % Change in Quantity Demanded
The demand for sugary drinks is expected to decrease by -23.75%.
The revenue generated by the government will be an additional 25% .
b) Obesity is becoming an increasingly common problem in Australia. Obesity leads to other
problems like cardio vascular diseases which can have a significant impact on the healthcare
system of the country. (Australian Institute of Health and Welfare, 2017) Thus, there are
public health benefits to taxing sugary drinks.
In the event that taxation for sugary drinks go though, it is possible that the consumption of
sugary drinks may reduce as demand would be lower following an increase in price. If the
taxes are higher, then the manufacturers would be forced to offer healthier options such as
artificially sweetened drinks. This may change the consumption patterns among consumers.
(Brownell, et al., 2009)
The government may also, gain an additional source of revenue.

Imposition of a tax on sugary drinks has been recommended by experts too. Hence, it is a
good choice from the point of view of public health and economics to impose taxes in sugary
drinks. (Brownell, et al., 2009)
In a simple supply and demand model, an increase in taxes will lead to an increase in prices
and shift the demand curve to the left.
Figure 5 Source: Adapted from (Mankiw, 2008)
Q5)
Health care is often, a basic human need and not a choice. According to Salisbury (2016)
healthcare is a public good because it is not excludable and in no rival. Non excludable refers
to healthcare being an good that is needed by all. No person can be excluded by choice from
the provision of health care. Non rival refers to healthcare being a need that cannot be

satisfied or replaced by another good. The consumption of healthcare does not decrease
utility for other goods or services and vice versa. Hence, the economic resources dedicated to
healthcare either neither avoidable nor should they be excluded from the budget of an
individual or a community.
Moreover, healthcare is inherently tied to human capital. Human capital is an important
aspect that fuels economic development of a country. Hence, healthcare provisions can be
justified as a investment as it may help boost the productivity of the human capital of the
country.
Salisbury, (2016) demonstrated that it is possible for healthcare can be Pareto efficient i.e the
administration of public healthcare does not necessarily have to take away from other
resources that are provided to the public.
The provision of healthcare can also, be linked to inequality. For example, in Australia, the
Aboriginal communities have the worst outcomes, in terms of health. These communities
are , also, the communities that have the lowest incomes, lowest education and located in the
remotest part of the country. (Turrell, Stanley, Looper, & Oldenburg, 2006) In a free market,
the ability of a patient decides their ability to purchase resources. In such a situation, people
with higher incomes will over receive priority over those who have a lower ability to pay. A
healthcare system where health care is treated like a public good, will tend to reduce those
inequalities. Additionally, if the healthcare system has a mandate to serve every citizen, then
it is possible to provide healthcare, even in the remote parts of the country. In a free market
system, health care facilities may not reach these parts of the country, simply because the
cost-benefits economics may not make it feasible.
Bibliography
Allianz Global Assistance. (2018). What is Overseas Visitor Health Cover? Retrieved from Allianz
Global Assistance: https://allianzassistancehealth.com.au/en/visitors-visa-ovhc/how-
ovhc-works/?

gclid=Cj0KCQjwttbWBRDyARIsAN8zhbLpjhwyp2MNtN_fQRm7S0S70VUtG4Qlo9ryj3K3ec
vtW4IYao1C7IEaAupuEALw_wcB
Australian Institute of Health and Welfare. (2017, November 24). An interactive insight into
overweight and obesity in Australia. Retrieved from Australian Institute of Health and
Welfare: https://www.aihw.gov.au/reports/overweight-obesity/interactive-insight-into-
overweight-and-obesity/contents/how-many-people-are-overweight-or-obese
Australian Unity. (2018, April 2). How to stop out-of-pocket hospital costs from hurting.
Retrieved from Australian Unity:
http://www.australianunity.com.au/health-insurance/existing-members/wellplan-
online/using-your-cover/how-to-stop-out-of-pocket-hospital-costs-from-hurting
Brownell, K. D., Farley, T., Willett, W. C., Dr.P.H., B. M., Chaloupka, F. J., Thompson, J. W., &
Ludwig, D. S. (2009). The Public Health and Economic Benefits of Taxing Sugar-
Sweetened Beverages. The New England Journal of Medicine (361), 1599-1605.
Chauhan, S. (2009). MICROECONOMICS: Theory and Applications, Part 1. New Delhi: PHI.
Gunja, M. Z., Collins, S. R., & Beutel, S. (2016, March). How Deductible Exclusions in Marketplace
Plans Improve Access to Many Health Care Services. Retrieved from The Commonwealth
Fund : http://www.commonwealthfund.org/publications/issue-briefs/2016/mar/
deductible-exclusions
Mankiw, G. (2008). Principles of Microeconomics (5th ed.). Mason Ohio: Cengage Learning.
Salisbury, S. M. (2016). Why Health Care Should Be Universal: Using the Principles of Public
Welfare Economics to Make a Case for Universal Health Care Coverage. Undergraduate
Research Journal, Indiana University. Vol 16, 57-67.
Turrell, G., Stanley, L., Looper, M. d., & Oldenburg, B. (2006). Health inequalities in Australia:
morbidity, health behaviours, risk factors and health service use. Canberra, Australia:
Queensland University of Technology; Australian Institute of Health and Welfare.