1. Why is the demand for healthcare different than other economic goods? Provide a healthcare example.

Healthcare Demand's Unique Characteristics:

Inelastic Demand: The demand for healthcare is often inelastic, meaning that changes in price have less impact on the quantity of healthcare consumed. This is because health is a fundamental human need, and the decisions related to health are driven more by necessity than by price (Folland et al., 2007).

Asymmetry of Information: Consumers often rely on physicians or medical experts to tell them what healthcare services they need. This can create situations where patients might over-utilize services due to a lack of understanding or under the recommendation of healthcare providers (Arrow, 1963).

Urgency: Unlike many other goods, some healthcare services might be needed urgently, leaving little time for price comparison or shopping.

Example: Consider the demand for emergency medical services after a severe accident. Even if the prices for emergency services are high, individuals will seek immediate medical attention because of the urgency and potential risk to life. This contrasts with non-essential goods where an individual might forgo a purchase or look for cheaper alternatives if the price is deemed too high.

2. Why is the supply of healthcare different than other economic goods? Provide a healthcare example.

Unique Supply Side Factors in Healthcare:

Regulations and Licensing: The supply of healthcare services is heavily regulated. Whether it's the approval of new drugs or the licensing of medical professionals, these processes can be time-consuming and can constrain the immediate supply (Reinhardt, 2006).

High Fixed Costs and Investment: Establishing healthcare facilities, especially hospitals, requires significant investment. Furthermore, the development of new drugs or medical technologies involves substantial research & development costs (Pauly, 1980).

Specialized Knowledge: Medical professionals undergo years of rigorous education and training. This prolonged period of human capital development affects the supply, as it can't be rapidly increased in the short term.

Example: The production and supply of a new vaccine for an emerging disease. The process involves extensive research, clinical trials, regulatory approvals, and then mass production. Even if there's an urgent demand, the supply can't be instantly ramped up due to these inherent complexities and regulatory safeguards.

References:

Folland, S., Goodman, A. C., & Stano, M. (2007). The economics of health and health care. Pearson/Prentice Hall.

Arrow, K. J. (1963). Uncertainty and the welfare economics of medical care. The American Economic Review.

Reinhardt, U. E. (2006). The pricing of U.S. hospital services: Chaos behind a veil of secrecy. Health Affairs.

Pauly, M. V. (1980). Doctors and their workshops: Economic models of physician behavior. A National Bureau of Economic Research monograph. University of Chicago Press.