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The Economic Supply and Demand

Updated on August 4, 2017
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Christopher F. Bueno is currently the Dean of the College of Education, University of Northern Philippines, Vigan City.

     In economics, a market defines in the economic variables on the buyers (demands) and sellers (suppliers) of particular product or service. The buyers (demands)are those who are willing to buy the product at a certain price. As general rule in the law of economic demand:If the demand of the product is high, it follows that the price is high. If the demand of the products is low, it follows that the price is low. Therefore, the demand of the product has direct relationships to the price in the market.

The Economic Demand

     In economics, the demand is the ability to buy the products that is determined by the varied factors particularly on the income of the individual. It is the quantity of the particular good demanded by the individual. As general rule, the high demand means the high price of the product.

  • THE quantitative analysis of the demand function provides the general information in the quantity demand in the different functions of price and other related price variables.

      Of these, prices and incomes are the most useful for theoretical analysis. The demand function can represent the demand of an individual, or of all individuals demanding a particular good - in which case it is simply the sum of individual demands.

       In health economics, the demand function is reflected from the prices of medical products and other related medical good or services. The confinement of a patient depends so much on the income. There is always the tendency of the low income group to confine in the hospital that has low hospital fees. In buying a particular medicine, the buyer of let say paracetamol or anti-biotic drugs usually inquire the lowest prices of that particular pharmaceutical brand.

      In organizational and institutional structure, the individual who needs medical care usually depend on many socio economic and cultural factors to buy medical products and confinement in the hospital. On socio-economic factor, the income of the family is the primary reason to be confined in a hospital. Those hospitals with lower rates on payment of medical bills have higher demand for patients. This holds true in drugstore with lower prices of medicine.

     This is the general illustration of demand schedule at a given market price. The demand curve characterizes by the sloping downward.

                       PRICE            QUANTITY

                      10                    500

                      20                    400

                     30                     300

                     40                     200

                     50                     100

      The demand curve shows that if the product has the price $10.00 it may possibly reach the quantity demanded to 500.However, the same commodity with the price of $50 may only produce have the quantity demanded of 100 or even lower.

     The simple illustration of the demand curve let say a price of a medical drug like anti-biotic is $1.00 ,the assumption for the individual to buy the product is only 10 capsules that can be sold in the drugstore, however, if the price is $.90 the drugstore can sell around 20 capsules. If the price of that anti-biotic is $.80 the capsules being sold will reduce to only 30 capsules. The demand curve follows if the price is $ .70 the quantity demanded is 30 for the price of $ .60. How much more if the price of the antibiotic is $ .60 , the possibility that 40 capsules will be sold in the drugstore.

      The demand curve has inverse relationship between the price and quantity of goods that consumers are willing to buy. If the price of the commodity is low, there is a higher quantity demanded for the product. This is the reason that the cost of the antibiotic is low there the possibility that they can sell more capsules because they are willing to buy a very low of any drugs.

     The demand curve explains that any commodity or product that has low price there is a possibility that there are more individual who are willing to buy the products.

The Economic Factors that Affect the Demand

1. Income

       As the average income people and households increases, the demand for specific goods also increases. This is because when people have higher incomes, they have more money to spend for buying things. For example, we can expect that more people will buy more cars once the national economy improves and the income of people increases. As the income of a certain person increases, he will tend to buy a more expensive car. The higher incomes make commodities relatively cheaper simply because people have more money to buy goods and services.

      The income of the people is the compensation derives from salary or wage in working to private company or government agency. It could also be derive from the saving or profit from the investment or business. So whatever compensation in form of monetary value is translated as income which is to buy the basic (food, clothing, shelter, education, health and etc.) and secondary (car, appliances, jeweleries and etc.) needs.

    The increase of income such wages, salaries, incentive bonus, honorarium and stock dividends may increase the purchasing power or the ability to buy more goods or commodities. They have more money to buy goods. As a result of this, people tend to have an interest in buying expensive cars, jewelries and appliances. They prefer to enroll their children to a more expensive private school. In case of illness, they tend confine their children to a well- equip private hospital with higher user fees. They prefer to spend their money in a more quality services of restaurant, hotels, and transportation and communication gadgets.

2. Price of the Product

     The price of a product is a certain monetary value at which the product is being sold. A higher own price of a product decreases the demand for such. A lower price increases the demand. Thus, there is an inverse relationship between the price of the product and the quantity being demanded.

      The prime determinant of the demand curve is the price of a product. If there is a lower price of the products the demand is high. The individual is willing to buy a certain commodity if he/she thinks that the price is very low. Therefore, they are being attracted to buy any products which they believe that they can buy more commodities. The higher price of product the tendency of the buyer is to think first that the product is quite expensive. If this is the case then the demand will not be high as they have to give other priority commodities that they are willing to buy because it is cheap and affordable. This is the reason why the demand curve is inverse relationship wherein, there are more demand ( they are willing to buy because they have affordable price) for a certain product if the price is low, however, there are few demand ( they are not willing to buy because on expensive price) when the price is high.

3. Taste, Preference and Expectation

      The satisfaction of human wants and needs provide the kind of taste and preference for the economic demand in the market. It influences buying decisions but is more difficult to assess. Taste,more likely than not, differs from person to person. Taste makes people go to either Mc Donalds or Jollibee, or prefer a Mercedes benz to BMW, drink French wine than an Australian wine. Different people will have different tastes that influence buying behavior. The individual behaviours provide varied expectation when they are going to buy the products today or tomorrow depending to their expected income in a certain period.

4. Socio-Demographic Demand

     As the population increases, more people will use commodities. As more members of the population enter adulthood, the demand for specific products that are use by specific age groups also increases, e.g. cars, cigarettes, watches, among other. The urban areas provide the bulk of economic demands of the different products as the convergence of different industries, trade and business enhance the increasing number of employment and income of the entire populace.

     In health economics, these factors that affect the demand curve for the demand of medical products and services:

1. The increasing average income of people tend to prefer the services of private medical hospital because of the better health services they offered in their air conditioned room, fully equip medical facilities and better medical services. Although, the private medical hospitals are quite expensive in their confinement they are willing to pay for such services because of higher income.

2. The increasing population of a locality may result to the increasing medical care services particularly in the urban areas. The increase of commercial activities may result to migration in the urban areas. The hospital is strategically located in the urban areas provided more opportunity to get patients in the urban areas.

3. The substitute products can be done from the lowering rates of hospital as be come more competitive and can get more patients to be confined in this hospital. The quality health services given in this hospital can substitute their an affordable service for physician fee, medical services and other service they are providing to the patient. The complementary products are usually done in the promotional activities of the hospital. However, it is rarely done to attract the stakeholders the improvement of their services and better quality of care given to the patients.

4. The influence of the stakeholder to confine themselves in the hospital is also reflected from the added medical service such as x-ray radiographic equipment, sterilizing equipment, operating room instrumentation, fetal monitors, infant incubators, ecg instruments, operating table lights, ct scans, other medical instruments, and operating room equipment. The competent physicians are the most important factor why stakeholders are attracted to be confined or for their medical check in the hospital.

      Given these factors of the demand curve for the hospital and clinic we can now summarize the reasons for the increase demand or through the confine of the hospital:

1. The affordable and low cost charges of medical services such as laboratory fees, private room rates, physician fees, medicine charges and other similar charge expenses upon confinement.

2. The modest income received by the stakeholders provides them to go for medical check and confinement with tertiary hospitals who are fully equip to give quality service to their patients.

3. The increasing population and mobility of labor to the urban areas where hospital is strategically located to give service to the stakeholders.

4. The presence of modern and technologically advanced gadgets to monitor patient’s health . Likewise , the presence of competent physicians to correctly diagnose the illness of the patient

The Law of Economic Supply

       The sellers (supplier) are the producers of goods and services at an acceptable price in the market. Always remember that producers and sellers (businesses) produce and sell to make profits. They prefer a scenario where they can sell their products at higher price-simply because it will give them higher profits The economic law of supply and demand provides the basis on the price mechanism system that is now acceptable the market. As general rule in the law of economic supply: If the supply of the product is high, it follows that the price is low. If the supply of the products is low, it follows that the price is high. Therefore, the supply of the product has inverse relationships to the price in the market.

       The economic supply provides information about the “quantity supplied” which is determined by the amount of commodity sold in the market. These are major factors that influence the quantity supplied of the economic goods in the market.

1. The input prices in the production of certain goods such as the wages/salary compensation, raw materials, capital investments and other production costs may possibly reduce the quantity supplied in the market. The increase of the input prices decreases the production of goods because this may reduce the profit of the firm.

2. The mass production of economic goods through the use of modern technologies may reduce the cost of the production at the same time produce more goods in the market. It is more profitable to use technology as can easily produce higher level in the transformation of economic goods.

3. The expectations on the rise on the prices of the economic products in the future. The rise of the economic supply depends so much on the rise of the prices of products in the market.

      The market structure may also influence the economic supply in the society. This defines the firm competition of a given products that may be studied on the nature of products, number and size of the firms and its entry and exit conditions in the market. The common market structures on the firm competition takes place on : (1) perfect competition; (2) monopoly; and (3) oligopoly.

       In perfect competition, there are many firms compete on homogenous products in the market. This is based on the free market enterprise the entry and exit conditions are easy may not be a problem as to the entrance of economic players. While, monopoly there is only one firm in selling product in the market . There are restrictions and protections in the entrance of the market enterprise. This is characterize by non-price competition. Finally , the oligopoly there are only few firms in selling the product which may either differentiated or homogeneous .

      In health economics, the economic supply emanates from producers and sellers on health care service. Always remember that producers and sellers (businesses) produce and sell to make profits. They prefer a scenario where they can sell their products at higher price-simply because it will give them higher profits.

      In the case of supply of medical care the producer is the hospital that provides health care service for the patient. In hospital, the health care services consist of the primary, secondary and tertiary prevention. The primary prevention provides in the promotion and illness prevention of health. Secondly, the secondary prevention provides the diagnosis and treatment of illness. While the tertiary prevention provides the health care services for the rehabilitation, restoration and palliative health care.

      The economic supplies for the medical cares are the hospitals, clinics, medical centers, drug stores and pharmaceutical companies.It should be noted that the term “goods” in health economics are those needed medicine and medical diagnosis of patients. These are pharmaceutical companies, drug stores and medical supplies who are considered as the “producers and suppliers” of medicines, drugs, medical equipment and facilities.

      While “ services” which still in the category of “supply” is the professional service given by a physician, likewise the consultation fees, medical fees, laboratory fees, and other related hospitalization fees of patients.

Supply for Medical Care : Hospitals, Clinics Medical Center , Drug stores , and Pharmaceutical Companies.

Goods. The producers and suppliers of medicines, drugs, medical equipment and facilities.

Services. The consultation fees, medical fees, laboratory fees, and other related hospitalization fees.

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