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METHODICAL INRUCTION

June 16, 2024

METHODICAL INSTRUCTION FOR STUDENTS OF THE

INSTITUTE OF NURSING

LESSON № _8_ (PRACTICAL – 6 HOURS)

Theme: 1. Market Performance of Health Care Providers. – 6 hours.

Aim: 1. To understand the structure, conduct, and performance paradigm of industrial organization. To examine the characteristics of pure monopoly.

Professional orientation of students: Actual decisions in the real world concerning resource allocation may be conducted at a centralized or decentralized level. The analysis allows the marketplace to take on varying degrees of competition.

The belief many people hold in the ability of competitive markets to efficiently allocate resources should not surprise anyone schooled in economics. According to traditional microeconomic theory, perfect competition creates a “survival of the fittest” market mentality and thereby forces firms to satisfy consumer wants and produce with least-cost methods of production. If competition has the power to weave this same magic in medical markets, incentives exist for medical firms to offer high-quality, cost-effective medical products at the lowest possible prices. With health care costs comprising such a significant percentage of national income, competitive behavior among medical firms might be a welcome sight in today’s health economy.

But are the various features normally associated with perfect competition applicable to medical care industries? Do the characteristics necessary for a perfectly competitive framework hold in medical markets? If some particular medical industries closely resemble the perfectly competitive model, how are markets expected to behave according to economic theory? What happens to market outcomes if markets are not perfectly competitive?

1. Individual Students Program.

Theme № 1 for the Practical Class on “Market Performance of Health Care Providers”

1. Structure, Conduct, and Performance Paradigm.

2. Is a Perfectly Competitive Market Relevant to Medical Care?

3. A Model of Supply and Demand.

4. Comparative Static Analysis.

5. A Note on Long-Run Entry and Exit in a Perfectly Competitive Market.

6. Using Supply and Demand to Explain Rising Health Care Costs.

7. The Monopoly Model of Market Behavior and Performance.

8. The Buyer Side of the Market.

9. Precompetitive and Anticompetitive Aspects of Product Differentiation.

10. Collusive Oligopoly.

11. Competitive Oligopoly.

12. Defining the Relevant Market, Measuring Concentration, and Identifying Market Power.

13. The Relevant Product and Geographical Markets.

14. Identifying Market Power.

2. Test evaluation and situational tasks:

a) For the Practical Class on “Market Performance of Health Care Providers”

1. Many sellers possessing tiny market shares, a homogeneous product, no barriers to entry, and perfect buyer information are the characteristics of.

A. Perfect competition

B. Oligopoly

C. Monopolistic competition

D. Pure Monopoly

E. There is no right answer

2. One seller of a good or service and perfect barriers to entry characterize:

A. Oligopoly

B. Perfect competition

C. Costs

D. Monopoly

E. Money circulation

3. The distinguishing feature of monopolistic competition is a.

A. Costs

B. Differentiated product

C. Competition

D. Price

E. Advertising

4. An industry is considered to be tightly concentrated when the CR4 is greater than:

A. 30 percent

B. 40 percent

C. 50 percent

D. 60 percent

E. 70 percent

5. Many sellers possessing relatively small market shares, a product that is somewhat differentiated across firms, no barriers to entry, and some slight imperfections concerning consumer information are the characteristics of.

A. Perfect competition

B. Oligopoly

C. Monopolistic competition

D. Pure Monopoly

E. There is no right answer

3. Correct answers of test evaluations and situational tasks for Practical Class on “Market Performance of Health Care Providers”:

1. A. 2. D. 3. B. 4. D. 5. C.

4. References:

А – Basic:

1. Rexford E. Santerre, Stephen P. Neun. Health Economics: Theory, Insights, and Industry Studies, 5 editions. – S-th-W-rn C-ge P-b, 2009. – ISBN: 0324789076. – 624 p.

2. Philip A. Musgrove. Health Economics in Development. –W..d B-k P—ns, 2003. – ISBN: 0821355708. – 455 p.

3. A.J. Culyer, J.P. Newhouse. Handbook of Health Economics, Volume 1A. –Publisher: Nor the Holland, 2000. – ISBN: 0444504702. – 1000 p.

4. Rice, Jones. Applied Health Economics. – Routledge, 2007. – ISBN: 0415397715. – 335 p.

5. Jordan Braverma. Health Economics. – Pharmaceutical Press, 2009. – ISBN: 0853698678. – 359 p.

6. Peter Zweifel, Friedrich Breyer, Mathias Kifmann. Health Economics. –Springer, 2009. – ISBN: 3540278044. – 529 p.

7. Ceri J. Phillips. Health Economics: An Introduction for Health Professionals. – Wiley-Blackwell, 2005-11-04. – ISBN:0727918494. – 160 p.

В – Additional:

1. Anthony J. Culyer. The Dictionary of Health Economics Publisher. – Edwаrd Elgаr Pub., 2005-09-05. – ISBN: 1843762080. – 390 p.

2. Stefan Felder, Thomas Mayrhofer. Medical Decision Making: A Health Economic Primer. – Springer, 2011-07-25. – ISBN: 3642183298. – 217 p.

3. David Hyman. Improving Healthcare: A Dose of Competition (Developments in Health Economics and Public Policy). – Publisher: Springer, 2006. – ISBN: 0387257519. – 436 p.

4. Francesco Paolucci. Health Care Financing and Insurance: Options for Design (Developments in Health Economics and Public Policy). – Publisher: Springer, 2010. – ISBN: 3642107931. – 115 p.

5. Barbara Mcpake. Health Economics: An International Perspective. – Routledge, 2002. – ISBN: 0415277361, 0415277353. – 344 p.

6. Anthony Scott, Alan Maynard, Robert Elliott. Advances in Health Economics. – Wiley, 2003-01-17. – ISBN: 0470848839. – 274 p.

7. Dr. Ross M. Mullner. Encyclopedia of Health Services Research. – English, 2009. – ISBN: 1412951798. – 1409 p.

5. Methodology of Practical Class. (9⁰⁰-11¹⁵)

Theme № 1 for Practical Class on “Market Performance of Health Care Providers”

Work 1.

1. Suppose the supply curve of medical services is perfectly inelastic. Analyze the impact of an increase in consumer income on the market price and quantity of medical services. Next, assume the demand for medical services is perfectly inelastic while the supply curve is upward sloping. Explain the impact of an increase in input prices on the market price and quantity of medical services.

2. In the country of Drazah Larom (moral hazard spelled backward), health insurance is nonexistent and all medical markets are perfectly competitive. Use supply and demand analysis to explain the impact of the following changes on the price and output of physician services.

2.1 A decrease in the wage of clinic-based nurses.

2.2 The adoption of cost-enhancing medical technologies.

2.3 An aging population and a correspondingly more severe patient case-mix.

2.4 Declining consumer income.

2.5 A lower market price for physician services (be careful here!).

Work 2.

1. In the 1980s, a shortage of registered nurses in the United States led to an increase of almost 21 percent in the real average hourly earnings of RNs from 1981 to 1989 (Pope and Menke, 1990). This increase was the highest of any occupational group. Use supply and demand theory to show the shortage and explain why a dramatic rise in the wage rate occurred. Was there still a shortage of registered nurses by 1994?

2. Using supply and demand analysis, show graphically and explain verbally some of the factors that may have led to rising health care costs in the United States from 1960 to the present day.

3. In the mid-1980s, female nurses became increasingly aware that a relatively large number of attractive job opportunities existed outside the medical services industry. In fact, a large number of colleges offered life and transfer credits for nurses so that they could change careers at less cost. Using an equilibrium model of the market for nurses, show what impact this market change had on the wage rate and employment of nurses. Work through the comparative statics and explain whether a temporary shortage or surplus occurred and the various market adjustments that took place as a result of the temporary imbalance.

Work 3.

Assume the sale of human organs is legalized and a free market develops. Furthermore, assume the market is in equilibrium. Trace through the price and output effects of the following:

1. An increase in the incomes of potential buyers of human kidneys.

2. A decrease in the price of kidney dialysis.

3. The development of a new drug that leaves the immune system intact while preventing transplant rejection (Waldholz, 1992).

4. A greater willingness by individuals to supply human kidneys.

Work 4.

A June 10, 1996, Wall Street Journal article titled “Americans Eat Up Vitamin E Supplies” discusses the shortage that existed for vitamin E at that time. According to the article, the shortage was created by two changes in the marketplace. First, the supply of soybeans, from which vitamin E is extracted, declined sharply. Second, a stream of scientific research from mainstream institutions shows that vitamin E helps to ward off such ailments as heart disease and cancer and some symptoms of aging.

1. Using two separate supply and demand graphs, graphically show and verbally explain how a shortage is created by each of the two changes.

2. Explain what eventually happens to price because of a shortage in a free market.

3. Explain how suppliers and buyers adjust their behavior as the shortage is eliminated in each of the two cases.

4. Explain what adjustment may take in the long run because of these changes.

Work 5.

1. Show graphically and explain verbally how a monopoly results in a deadweight loss. Also point out the redistribution that takes place in society because of monopoly.

2. Explain why economic profits are zero under monopolistic competition in the long run.

3. Explain the difference between the collusive and competitive oligopoly models and explain the role that the number of firms and barriers to entry play in determining how real-world oligopolistic industries behave.

4. Use the four market structures provided in the topic to explain the critical role played by barriers to entry in determining the level of competition in any given market.

5. Critically evaluate the following statement made by a marketing executive: “Advertising is good because it always promotes competition.”

6. What beneficial role do trademarks and brand names serve when information imperfections otherwise exist?

7. Explain the economic reasoning underlying the following statement: “People often fail to acquire information about the price they pay for medical services because of health insurance.”

8. Discuss the two ways product differentiation affects the demand for a product.

9. Explain how lack of information affects the price and quality of a medical good relative to a perfectly competitive situation

Work 6.

Suppose XER Inc. is a monopoly and produces a drug that cures the common cold. The weekly (inverse) market demand for its product takes the form P = 660 – 4Q, where Q is measured as number of tablets. The marginal costs (MC) and average total costs (ATC) are equal at $100 per tablet (that is, a horizontal marginal cost curve).

1. Given this information, solve for the level of output that will be produced by XER Inc. if it maximizes profits (you may need to consult footnote 2 in the topic).

2. Solve for the price charged and amount of profits earned by XER Inc.

3. From a societal point of view, does the profit-maximizing level of output represent an efficient level of output? Why or why not? Calculate the social damages created by XER Inc. (Hint: You will have to know how to calculate the area of a triangle.)

4. Suppose the source of the entry barrier was removed so XER Inc. is no longer a monopoly. How would equilibrium change? Explain fully.

Work 7.

1. Suppose that the annual number of admissions can be used as a measure of output for a group of hospitals operating in the same RGM. Categorize the type of market based on the degree of structural competition as measured by the four-firm concentration ratio and the Herfindahl-Hirschman index.

2. Explain why it is also important to analyze the structural aspects of the buyer-side of the market.

3. Identify the theoretical underpinnings associated with using profit rate as a measure of market power and what adjustments must be made to reported profit rates for economic reasons.

6. Seminar discussion of theoretical issues. (11⁴⁵-13¹⁵)

7. Student’s independent work (13^15-14⁰⁰).

8. Initial level of knowledge and skills. (14¹⁵-15⁰⁰)

9. Students should know:

Theme № 1 for Practical Class on “Market Performance of Health Care Providers”

1. The structure, conduct, and performance paradigm of industrial organization.

2. The structural characteristics of perfect competition and monopolistic competition.

3. The structural characteristics of oligopoly and monopoly

4. How a perfectly competitive market determines the price and quantity of a good or service, allocates resources, and corrects for shortages and surpluses.

5. Intermediate market outcomes between the polar extremes of perfect competition and pure monopoly.

6. A conceptual and empirical framework for defining the relevant market.

10. Students should be able to:

Theme № 1 for Practical Class on “Market Performance of Health Care Providers”

1. Examine the characteristics of pure monopoly.

2. Compare and contrast perfect competition and pure monopoly with respect to resource allocation.

3. Measure the degree of market concentration.