Thursday, October 29, 2009

Both demand AND supply 

John Palmer, coauthor of the Canadian edition of my favorite intro text, puts this much more simply than I have:

While some politicians talk about programmes designed to bring more people under the health-care umbrella, others talk about making health care more affordable. The former (combined with an aging population) will shift the demand curve outward; the latter will cause a movement downward along that shifted demand curve (a lower price increases the quantity demanded).

But if the supply curve doesn't shift outward, the above two policies will create more shortages and longer waiting periods (and committees of death, due to the shortages, no matter what they are called).

The only way to shift the demand curve outward, lower the prices to the users AND avoid shortages is to increase the supply.

So how to do it? Stop controlling the supply of medical professionals, says John. I'm not as sure of this, though, unless somehow you address the question of which professions they enter. The incentives for specialty doctors vs family/general practitioners are still skewed. Is there a way to change the price signal there without upsetting the provision of all those high-quality specialized services we enjoy? I am not sure how.

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