Economic Terms and Health Care

Economic Terms and Health Care History Introduction These days, the health care system is constantly changing in an attempt to meet the demands of an ever changing economy. Despite economic fluctuations, health care organizations must adjust its financing, organizational structure, and delivery of medical services to meet patient needs. Resources, however, are limited. As a result, it is vital that health care organizations understand their financial limitations all the while meeting patient demands. The following essay discusses the evolution of economics and how economics pertains to the health care system. Economics

Economics can be defined as the science that is concerned with the production, distribution, and consumption of goods and services. In essence, it is the study of the material welfare of humankind (Apollo Group, 2010). Economics in health care is concerned not only with the financial aspects of the system, but how those financial elements impact patient care. Like general economics, economics in health care makes two general hypotheses: one, people are directed by their goals and will act in their own best interest; two, although resources are limited, human needs and the potential for meeting those needs is limitless.

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According to Scott, Solomon, and McGowan, “Two basic points are 1) economics is about resource allocation, and 2) efficiency in resource use (getting the most from available resources) in health care can be understood by identifying production functions representing health-care services” (CDC, 2001). Therefore, those in the health care field have needed to be concerned with ensuring that resources, including material and human, are appropriately allocated to meet the needs of patients.

Given that needs are limitless, while resources are not, health care managers must be careful not to exhaust the goods and services that are available. Microeconomics and Macroeconomics Microeconomics is concerned with how individuals and organizations decide how to allocate the resources that are available to them so that they can meet their own or consumer demands. Macroeconomics, on the other hand, concerns the general population or, in this case, health care system as a whole, rather than individual consumers or organizations.

Micro and macroeconomics explain the supply and demand of the population. Microeconomics is focused on individual product costs in any given market. On the other hand, macroeconomics helps to explain the prices of the products that are sold. Additionally, macroeconomics is influenced by several causes, including consumer consumption, inflation, and employment rates In microeconomics, for instance, individuals who may need medical care, but do not have insurance, may choose to forgo treatment until it is absolutely necessary.

The part of the health care system—a hospital or clinic–that can assist them, perhaps through Medicare or Medicaid may also may be short on resources and therefore must allocate them sparingly to meet the demands of other patients. However, microeconomics directly affects macroeconomics. For each individual or organization that has demands that are unmet, the entire system becomes strained. Supply and Demand Supply and demand has played a role in society since the dawn of man. In any given market, supply and demand has influenced prices and the quantity of goods available.

This in effect determines micro and macroeconomics. If there is not a demand for products, then the supply is affected, in either an overage or a shortage. Without a demand for products, there would be no reason to supply them. Consequently, at times, if the demand is too great, then the supply would also be limited. Supply establishes a connection between how much a product is sold for and it also establishes the quantity that a supplier can or will sell. Consumers consider costs of a product or service and its relative value to them and ultimately determine supply and demand.

Gross Domestic Product Gross domestic product, or GDP, consists of the total market value of all goods and services produced within a nation’s border during specific periods of time (Apollo Group, 2010). In other words, this comprises all of the goods and services that are produced along with their market values in a country over the course of one fiscal year. There are three ways that gross market value is determined: through expenditures, income approach, or product approach. Despite the different approaches, the outcomes are identical.

In addition, the foundation of a nation’s gross domestic income determines the standard of living. It is established through a country’s total investments, government expenditures, and consumer spending. Elasticity and Inelasticity Consumers also determine elasticity as well as the costs of products by way of supply and demand. If consumers determine that a product or service is important or essential to them, then the cost may be higher, given that they will continue to purchase it out of necessity and thus willing to pay a higher price.

Furthermore, if one product or service is in great demand and will be purchased regardless of its cost, it is considered to be inelastic. Elasticity is important in economics because it is related to consumer and government surplus. Conclusion Economics can be used to determine and predict costs within the health care industry based on supply and demand, micro and macroeconomic trends, and service elasticity or inelasticity. For instance, if a physician constantly refers patients for off-site tests, then it can be determined that that having the capabilities to do on-site tests could meet the patient demand.

Health care managers must identify what consumers need. They must not only look at the microeconomic picture, but also the macroeconomic picture to determine trends in supply and demand. In essence, without an understanding of economic principles and how to apply them, it would be difficult for society to effectively meet their wants and needs. References Scott, R. , Solomon, S. , & McGowan, J. (2001). Applying Economic Principles to Health Care. CDC. Retrieved on May 9, 2011 from http://www. cdc. gov/ncidod/eid/vol7no2/scott. htm.



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