Critical Thinking On Demand And Supply Shifts:
a. Shock: A technological change occurs that reduces the cost of producing cancer tests. Market: Physician clinic services.
Appearance of new high technologies is one of the non-price factors, which leads to decrease in production costs per unit of product, and hence to expand product supply. Technological change, in this case, tends to reduce the cost of physician clinic services. Demand will be not changed. However, we will see the increase in supply. The supply curve (S1) would be shifted to the right (S2). The price will become lower (P2) and the quantity will increase (Q2).
b. Shock: Increased graduations of new doctors. Market: physician services.
New doctors will start their career on the market of physician services. Increasing the number of sellers will cause an increase in services offered in the market, the curve moves to the right. That is why an equilibrium price will decline and the quantity will increase.
Shock: Virtual elimination of smoking in the population. Market: Hospital services.
Movement of the demand curve from D1 (solid line) to D2 (dashed line). This decreases demand. Such decreases are caused by a change in the non-price determinant of demand. With a decrease in demand there is a shift of the demand curve to the left along the supply curve. Therefore, both equilibrium quantity and price decline. If we move from D2 to D1 that is called an increase in demand, possibly due to an increase in the price of a substitute good or an increase in the number of consumers in the market. The quantity consumed and the price will be higher at the new equilibrium.
Shock: Price ceiling placed on physician fees. Market: physician services.
The reasons for setting price ceiling in the physician service market is the desire of a government to provide the necessary level of consumption of basic needs for most people. The maximum price limit is a statutory maximum price at which the seller can sell their goods. Price ceiling is always lower than the market price. It seems that we should expect only positive consequences of the establishment of such price. However, it can become the reason of the deficit of such services.
2. Consider the following demand function:
Q = 1500 - 1.5P
Assume the initial price is P= $300. Consider a price change of $1 and calculate the price elasticity of demand. Is demand elastic?
Q1 = 1500 - 1.5×300=1050
Q2 = 1500 - 1.5×301=1048,5
Ep=∆Q/Q∆P/P=`(1048.5-1050)/1050(300-301)/300 = - 0,42857
If 0<Ed<1 the demand is inelastic or relatively inelastic. That happens when the change in the quantity demanded is a relatively smaller than change in price.
1. Chapter One of Freakonomics, by STEPHEN J. DUBNER and STEVEN D. LEVITT
The incentives are true love of economists. Undoubtedly, economics studies incentives: how to get what you need, or want, especially when other people want the same. It is believed that people have not invented a problem that he cannot be fixed by designing the proper incentive scheme. The solution is sometimes not pretty, but the original problem will be fixed.
Question/idea: Before doing experiments on people and creating incentives we should be sure that it will be working for the goal (not like with day-care centers in Haifa, Israel, the fine was too low and replaced the moral incentive).
2. “Unintended Consequences” by STEPHEN J. DUBNER and STEVEN D. LEVITT. The law of unintended consequences tells that sometimes acts are not working for the good result. According to the Americans With Disabilities Act, a patient can choose the mode of interpretation, at the physician’s expense. The problem is that somebody (doctor) has to pay for it and it is no profit for him to pay the interpreter out of his pocket. Sometimes doctors do not take care of these patients. The patient will not understand why she is not getting good care.
Question/idea: Why not to make them (acts, low) more flexible?
3. How does the existence of medical malpractice laws affect the behavior of physicians in potentially good and bad ways? It happened to Andrew Brooks and other doctors (“Unintended Consequences”). Every doctor had a situation when it was easier not to help or sent to another doctor. Sometimes they do not feel the responsibility. The low cannot protect everyone.
4. What unanticipated effects of local-level smoking bans on bars might you observe in people's driving habits?
Levitt and Porter (2001) made a research where they identified a source of increased alcohol-related car accidents that have previously gone unnoticed – the prohibition of smoking in bars. They think that it is not a time for smoking bans.
The “sin tax” is a strong economic incentive against buying cigarettes. Cigarettes are banned in restaurants and bars. It is a powerful social incentive. The news that terrorists raise money by selling black-market cigarettes acts as a rather jarring moral incentive. Nevertheless, cigarettes are forbidden and for youth they are still attractive, there are a lot of movies and magazines with nice and attractive images. That is why bans are not working.