Topic

Demand, supply and markets

How people respond to prices and how producers decide what to supply shape every health care market. These concepts cover elasticity, equilibrium and the different ways markets are structured, from competition to monopoly.

Concepts in this topic

• Competition TheoryCompetition theory explains how rivalry between firms and market structure shape prices and quality, including in hospital and health insurance markets.
• ElasticityA measure of how strongly one economic quantity responds to a change in another, such as the responsiveness of quantity demanded to a change in price or income.
• Equilibrium PriceAn equilibrium price is the price at which quantity demanded equals quantity supplied in a specified market under the model's stated conditions.
• Game TheoryGame theory in health economics analyses strategic choices by payers, providers, manufacturers and patients whose outcomes depend on what the others do.
• Inelastic DemandA condition in which quantity demanded changes proportionally less than a given price change, indicating consumers are relatively insensitive to price.
• Market StructureThe organisational characteristics of a market, including the number of buyers and sellers and barriers to entry, that determine its degree of competition.
• Monopoly PricingThe pricing behaviour of a firm with monopoly power, setting price above marginal cost to maximise profit and reduce quantity supplied.
• Oligopoly BehaviourThe strategic pricing and output decisions of firms in a market dominated by a small number of sellers who must anticipate rivals' responses.
• Producer TheoryThe branch of microeconomic theory analysing how firms choose inputs and output levels to maximise profit given their costs and market conditions.
• Substitution EffectThe change in quantity of a good consumed that results purely from a change in its relative price, holding purchasing power constant.
• SupplyThe quantity of a good or service producers are willing and able to offer for sale at a given price over a specified period.
• Supply CurveA graph showing the relationship between price and the quantity producers are willing to supply, typically sloping upward as price rises.