Health ecnomics

• Demand


  The maximum quantity of a good that an individual wishes (or individuals collectively wish) to purchase given the price of the good, ceteris paribus, during a given period of time
• Consumer Theory


  The study of how people decide to spend their money based on their individual preferences and budget constraints
• Budget constraint


  The different bundles that the consumer can afford
• Consumption bundle


  What a consumer would like to consume, containing different quantities of various goods
• Utility


  What a consumer achieves by consuming a particular consumption bundle
• Consumers prefer one bundle of goods to another if the utility she gets from the former is greater than the utility she gets from the latter
• Law of demand


  A higher price leads to a lower quantity demanded and a lower price leads to a higher quantity demanded
• Assumptions about human behavior in Consumer Theory

  • Utility maximization
  • Non-satiation
  • Decreasing marginal utility
• Cardinal Utility


  Utility that determines the satisfaction of a commodity used by an individual and can be supported with a numeric value
• Ordinal Utility


  Satisfaction of user goods can be ranked in order of preference but cannot be evaluated numerically
• Total Utility


  The total amount of satisfaction you get from all the units you consume of a good or service
• Marginal Utility


  The change in the level of total utility that results from a one unit change in consumption
• Diminishing marginal utility of consumption occurs when consuming additional small quantities of the good increases total utility but at a decreasing rate

  
• Utility Function


  A mathematical function that represents the utility or preferences of an individual
• Utility of Income


  The total utility, or satisfaction achieved with an individual's income
• Marginal Utility of Consumption


  The change in utility, or satisfaction, resulting from a change in an individual's consumption

  
• Marginal Utility of Income


  The change in utility, or satisfaction, resulting from a change in an individual's income
• Willingness to Pay (WTP)


  The maximum amount an individual is willing to sacrifice to procure a good
• Maximum Willingness to Pay at the Margin


  The maximum that an individual is willing to pay to consume an additional unit of the good or service
• Value in Use


  The maximum willingness to pay for a particular quantity of a good
• Value in Exchange


  The amount actually paid for the quantity consumed
• Consumer Surplus


  The difference between willingness to pay for a good and the price that consumers actually pay for it
• Inverse Demand Function


  Plots price on the vertical axis and quantity on the horizontal axis, instead of the standard demand function

  
• The price elasticity of demand is always negative along a downward-sloping demand function, because a rise in price will always reduce demand and a fall in price will always increase demand

  
• Price Elasticity of Demand


  Measures the sensitivity of the quantity of a good demanded to a change in its own price

  
• Types of Price Elasticity of Demand

  • Elastic (>-1)
  • Inelastic (-1 to 0)
  • Perfectly Inelastic (0)
  • Unitary Elastic (-1)
  • Perfectly Elastic (infinity)

  
• Income Elasticity of Demand

  Measures the sensitivity of the demand for a good with respect to a change in a person's income

  
• Types of Income Elasticity of Demand

  • Negative (Inferior Good)
  • Positive (Normal Good)

  
• Substitute Good


  A product or service that decreases a customer's WTP for another company's product or service
• Complementary Good


  A product or service that lifts a customer's willingness to pay (WTP) for another product or service
• Cross-Price Elasticity of Demand

  Measures the sensitivity of the quantity of good A demanded as the price of another good, good B, changes

  
• Cross elasticity of complementary goods is negative whereas cross elasticity of the substitute goods will be positive
• Movement in Demand Curve


  Change in quantity demanded due to price variation

  
• Shift in Demand Curve


  Change in demand itself caused by non-price factors

  
• Factors that Cause a Shift in Demand Curve

  • Taste/Preferences of consumer
  • Number of consumers
  • Price of related goods
  • Income
  • Expectation

  
• Market Demand Function


  Derived by summing the individual demand functions at each price

  
• Supply


  The maximum amount of a particular good or service that an organisation is willing to provide for sale at each possible price of the good, ceteris paribus, in a given period
• Theory of Firms


  Provides a framework for analysing a firm's production and output decisions to maximize profits
• Factors of Production


  The inputs into the production process, typically capital and labour
• Firm/Organisation's output decision


  What to provide to the market