(ii) Explain, using the example of healthcare, the economic functioning of the market, using terms including demand and supply, price mechanism, incentives, market equilibrium, equilibrium price and quantity. IntroductionA market is a place where buyer interacts with seller and takes goods and services from the seller in exchange of money. Basically, trading of goods takes place in a market. The place can be a shopping complex, market place or a street market.Market FunctionsMarket function or economic functioning of market prevails in a market to ensure satisfaction of buyers ands sellers in the market. The buyer and seller both are well informed about the prices so that they can make transactions accordingly and satisfy themselves. Another function of market is to control fluctuations in supply and demand and keep prices under check. There are various types of markets, one of them is healthcare institutions In healthcare institution there are suppliers (i.e) doctors and consumers (i.e) patients the services offered by the supplier are usually demanded when the consumer is ill or unhealthy. In this particular market, there prevails supplier induced demand (i.e) the doctor creates demand and supply himself as the patients are not well informed so they tend to trust the doctor to work for their welfare. The doctors usually work for profit incentive so it’s quite common in this market. The market equilibrium is attained when the patient is ready to pay the cost demanded by the doctor for his services, which are usually quite high so people prefer public healthcare institutions (iii) Explain the demographic demand pattern for healthcare. Demographic shifts and societal changes are making pressure on health systems more intense. Ageing populations are driving up the demand for healthcare. More healthcare resources are needed globally to deliver the services required by aging population.Driven to some degree by statistic changes, another worldview of open and private part joint effort is creating to change medicinal services financing and conveyance. Organizations with new advertise participants from businesses, for example, retail, broadcast communications, innovation, wellbeing and wellness are extending and reshaping the wellbeing framework. What is the result for teammates? These associations open the way to a multi-trillion dollar worldwide market for these new business contestants, while governments access the advancement and effectiveness of new innovations they would not generally have the capacity to manage. The common advantages are long haul cost funds with better results for the patients while changing socioeconomics are draining wellbeing assets. A rising working class will fuel expanding interest for more wellbeing choices. Looking forward, more compelling associations are required between general society and private areas to meet these desires. Coordinated efforts that in the past may have appeared to be impossible will end up noticeably typical. Changing innovation and customer needs will rouse organization developments that slice through regular reasoning. As the populace develops, mechanical developments in portable wellbeing (mHealth) will propel financially savvy wellbeing arrangements. Innovation and investigation are introducing better approaches for advancing health, anticipating illness and giving patient-driven care. These advances are energizing devices for suppliers, private payers and governments alike, as they convey more noteworthy accuracy to foreseeing quiet conduct and identifying and diagnosing ailments. Distinctive parts of the world will be affected contrastingly by these statistic shifts. Effective and practical change over the globe will require adaptable and versatile models to fit the new wellbeing economies.(iv) Explain possible causes for and effects of shifts in demand and supply in this market.B. Factors Affecting Health Care Demand Measures of demand indicate the quantity of health services the population wants, for example:Income. Families with high incomes tend to have higher use of health services because the cost of these services are affordable for them. Since they can afford preventive care as well, so they somewhat reduce their need for health services. This is called double effect of income. Price. There is negative effect of price on the demand for health care. The price of health care affects the demand of services. As income of consumer falls, changes in price makes demand more sensitive. This clearly implies that rise in consumer’s fees would proportionately reduce the access of health care to the poor and the rich’s will be unaffected because they can still afford the services being rendered. Health Insurance. Aside from reducing the net price of health care, insurance may be viewed as a method of financing the demand for health care. It not only reduces the cost of care, it also increases the family’s ability to secure health services. Therefore, health insurance is expected to raise the utilization and expenditure of health care. Age. Inpatient admissions: a higher number of admissions in the hospital of patients can reflect a high demand for the service, admissions are likely to be high in an aging population.Distance of Source of Health Care. Accessibility to hospitals: This cause can be affected by of factors such as: distance from the patients to hospitals, easy accessibility to hospitals , time consumed by ambulances to transfer patients, service provided by different health care institutions and quality and standards of care. Sometimes geographical difference between two healthcare institutions is not enough and it can’t be determined that the population of that area will prefer which healthcare providerMeasures of supply indicate the amount of care that can be provided : • Staff: number of doctors available, consultants, number of nurses and managers can be considered as major roles which determine supply of care that can be provided • in patient care beds, capacity in residential nursing homes can affect supply of a healthcare institution • Technology: Technological up gradation and investment in machines like MRI scanners, CT scanners can cause a rightward shift in supply curve • Budget: surplus, debt, funds available for investment, other sources of income(v) Explain own price, cross-price and income elasticity of demand for healthcare. Use diagrams where applicable. Own price elasticity demandReactions of demand to the change of a products own price is a measure known as the on price elasticity demand. It is generally negative and that is the quantity of medical services or health insurance demanded is reduced, ceteris paribus, due to higher price or greater cost. In general, the demand for health is estimated to be price inelastic which indicates that in response to an increase in price, consumers do not strongly reduce the amount of care they use. Cross price elasticity of demandThe cross price elasticity of demand is a measure of the responsiveness of demand for a service or good to the change in the price of another service or good. It can also be stated as an equation in which it would equal the percentage change in the quantity demanded of one good at a particular price which is then divided by the percentage change in the price of a related good Generally, cross price elasticity is positive for complement but negative for substitutes. Cross-price elasticity hasn’t ideally been estimated for either health care services or health insurance however it mainly addresses the demand for particular sorts of medical services including orthodontic services and nursing home care. Income elasticity of demandA consumer’s response to a change in their level of income ceteris paribus, is what the income elasticity of demand measures. A positive income elasticity of demand indicates that demand and income are moving towards same directions meaning that an increase in income would cause an increase in demand and the same would happen when there is a reduction in income.On the other hand, due to all studies indicating estimates of income elasticity being observational, the income elasticity of demand for both health care services and health insurance is measured as differences in demand determinable to differences in the income.divided by the percentage change in income that formed the change in demand.(vi) Explain all possible market failures in relation to healthcare. INFORMATION ASYMMETRYDoctors (i.e) suppliers in the health care market have more knowledge aboutillness and treatments than the patients themselves. Patients are likely to depend on the doctor and trust the doctors to act in their best interest, but there is generally a conflict of interest between the consumer and the supplier. The doctors try to create demand for their service by acting to work on patient’s welfare and the doctor himself the supplier of the services he provides. In such cases the demand and supply is determined by the same person which results in market failure. For example, suppose the doctor works for a profit maximizing motive to create more income, so he’s likely create unnecessary demand and supply of his service. This market failure is known as supplier induced demand. ADVERSE SELECTIONUnhealthy Individuals are more likely to purchase health insurance than healthy individual, and they utilize health care services more than healthy individuals. This leads insurance companies to pay more and to avoid losses, insurance companies raise premiums.Widespread discouragement to purchase health insurance may occur among healthy individuals. Due to high premiums only unhealthy and very ill people will buy health insurance which will lead to losses by insurance companies and eventually market failure. EXTERNALITIESExternalities are basically bubble-over effects of consumption or production. Negative externalities occur when the actions of one person results in a bubble-over that costs the well being of another individual and negative externalities improves well being of another individual. The best example of negative externalities is smoking. If a person is smoking around people, he’s causing hazard to other non smokers around him (effects of passive smoke). Example of positive externality is immunisation. If individuals are healthy and immunised then they do not fall sick or obtain any contagious illness therefore they do not pass it on to others and maintain a healthy environment which is beneficial for everyone. The level of production and consumption of positive externalities is really low while the level of production of negative externalities is higher than optimal, therefore externalities lead to inefficiency and to market failures.(vii) Explain possible options for government intervention to correct such market failures. adverse selectioncan be corrected if government imposes a law which states that every individual should buy health insurance irrespective of being healthy or unhealthy so that insurance companies have comparatively less risk which on the average will be lower than the risk from covering only the unhealthy or very ill. Information asymmetry The govt has a significant role of making sure that some of the asymmetric information is reduced or gotten rid off. generally, the goal is to be able to increase the supply and demand for information.increasing supply of information: producers may get forced to provide accurate information by the government about goods and services through accurate labelling. For example, providing accurate content and instructions on pharmaceutical products.Increasing demand for information: government may promote pressure groups such as patients4NHS who campaign for more knowledge made accessible by the producer. Also, the demand for knowledge would increase if it is at a lower cost or even free.externalitiesThe market itself is not capable to correct failures arising from externalities. To correct failure caused due to externalities, government should provide subsidies in case of positive externalities and impose taxes in the case of negative externalities. Imposing subsidies will encourage consumers or producers to bring positive externalities to optimum level. Imposing tax will help to make the producer aware of the harm he is causing to society which will make him produce little to none negative externalities, thus subsidies and taxes can help eliminate the effects of externalities.