2. Some Basics Demand

3. Why demand? We want to look at what consumers do. Demand is related to total expenditures What happens to total expenditures if price increases? A> It depends on the elasticity Visits Money Price 40 30 20 10 Money price demand Total Exp.

4. What determines elasticity? What happens to quantity demanded as price changes? Let’s hold utility constant. visits Spam pvpv visits v1v2v3

5. What determines elasticity? (2) What happens to quantity demanded as price changes? Let’s hold utility constant. visits Spam pvpv visits v1v2v3 no change! Why? Discuss

6. Elastic and inelastic demand So, we derive demand curves. Some are MORE responsive to price than others. Visits Money Price 40 30 20 10 Elastic Inelastic

7. Income elasticity What is income elasticity? %  Q/%  Y What does this have to do with total expenditures? Income Quantity 40 30 20 10 Inelastic

8. Demand for Health Care General models suffice … BUT We want to look at the role of time and the role of insurance. WHY? Because often out-of-pocket costs are the smallest parts of the price of health care.

9. Time Costs Suppose a visit costs $25. BUT, parking and travel costs $5. Visit takes 1 hour @ $10 Visits Money Price Full Price 40 30 20 10 20 30 40 Money price demand Full price demand

10. Time Costs So, which curve is the one that applies. Suppose money costs fall to 0. What happens to quantity demanded? Visits Money Price Full Price 40 30 20 10 20 30 40 Money price demand Full price demand Suppose that a clinic opens up nearby? What happens? KEY !!! Must look at blue line, because it adds time and $ costs.

11. Insurance Suppose a visit costs $25. BUT, insurance pays 50%. Visits Money Price Effective Price 40 30 20 10 20 30 40 Money price demand Effective demand