Unbiased Analysis of Today's Healthcare Issues

How does changing medical prices affect patient demand?

Written By: Jason Shafrin - Aug• 19•09

Price elasticity estimates how consumer demand changes as prices change.  For instance, the price elasticity of medical service is defined as the percentage change in quantity of medical care demanded divided by the percentage change in price of the same commodity.  Most academics believe that the price elasticity for medical services is between 0 and -1.  This means that if prices increase by 10%, the demand for medical services decreases, but by less than 10%.  This means that medical goods are inelastic.

One can also measure the income elasticity for medical services.  Income elasticity measures the percentage change in the demand for medical services as income increases.  If the income elasticity is greater than 1, medical services are a luxury good.  This means that as people get richer, they want more of the good.  Estimates of income elasticity range from 0 to about 1.6; meaning that researchers do not know if medical services are elastic or inelastic with respect to income.

A paper by Borger et al. (2008) reviews of the findings of previous research regarding price and income elasticities of medical care.  Click on the following links for a listing of empirical estimates of price elasticities and income elasticities.

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One Comment

  1. Richard says:

    Borger et al. (2008)

    Can you provide a link for this?

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