HMGT 435 Assignment 2 final

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Assignment 2: Economic Analysis of the Demand for a Product/Service in Healthcare Sector Jacqueline J. Santoro University of Maryland Global Campus HMGT 435 Healthcare Economics Professor Janemarie Mulvey 7 November 2023

Memorandum To: Professor Janemarie Mulvey (Boss) From: Jacqueline Santoro Subject: Economic Analysis of the Demand for Lasik Eye Surgery in The Laser Eye Center 1. Description of Service: The service my company provides is Laser-Assisted in Situ Keratomileusis (LASIK) eye surgery. LASIK eye surgery is an elective refractive eye surgery procedure which reshapes the cornea with a laser and is usually only a one-time surgery. To receive this surgery patients must have a pre-surgery evaluation to see if they qualify and they must have post-operative care. LASIK has a quick recovery time, but results may vary. After an initial LASIK surgery, patients may need further adjustments or enhancements. LASIK can be used to correct vision problems such as nearsightedness, farsightedness, and astigmatism. 2. Evaluation of Demand Curve: In the evaluation of the demand curve, we are evaluating LASIK eye surgery which is a service. The demand curve is generally downward sloping meaning that the quantity demanded falls as prices rise when all other conditions are constant (UMGC). The demand theory abides by a core prognosis that consumers typically seek more of a service when the price is lower. LASIK surgery is an elective surgery, so the demand tends to be more sensitive to price changes. LASIK eye surgery is elective care which can make the demand sensitive (elastic) because consumers may alter their decisions about seeking care depending on the cost. If the cost is too high for LASIK eye surgery, patients may delay or not get the services at all.

There are some important facets of the demand curve to be aware of. Firstly, the quantity of services demanded can increase because some consumers utilize more services, or a larger proportion of the population chooses to buy a service (Lee, 2019). For example, if LASIK eye surgery is gaining traction on the internet, more consumers will choose to buy the service. Another important facet of the demand curve to be aware of is that sometimes prices will have to be cut to increase sales volume. This means that some consumers may be willing to utilize the service at a lower price in the case of LASIK eye surgery. Health insurance changes demand by reducing the price of covered goods and services. When more people have insurance which covers LASIK eye surgery, more of them will likely go for the surgery. However, the increase in people getting the services won’t be very large because most people do not decide to get care because of price changes (Lee, 2019). Overall, the existence of health insurance reduces the elasticity of demand for healthcare which means demand becomes inelastic. Additionally, an increase in insurance coverage for a high share of the population can result in the rise of quantity demanded, price rises, or both can occur. Increases in insurance represent the opportunity to increase price and margins. Overall, understanding the impact of LASIK eye surgery and the demand curve is crucial to managerial decision making. 3. Evaluation of Substitute Goods A substitute is a product used instead of another product. LASIK eye surgery is specialized, and there are many other different types of surgery that can be used in place of it. Some of these surgeries are photorefractive keratectomy (PRK) or laser epithelial keratomileusis (LASEK). Nevertheless, if consumers do not want to undergo invasive surgery, they do have the choice to keep utilizing glasses or contact lenses. Substitution is a big reason why demand curves

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generally slope down because consumption of a product usually falls if the price raises. (Lee, 2019). For example, if the service of LASIK eye surgery is higher than the substitute of glasses, more people will choose the substitute. Essentially, the choice to utilize the substitute can lead to a decrease in demand for LASIK services. 4. Evaluation of Complement Goods A complement is a product used with another product. Some potential complements to LASIK eye surgery are prescription eye drops or an eye care kit which aid in the recovery process. A shift in demand can occur when there is an increase in the price of a complement. An increase in price of prescription eye drops can typically lead to a decrease in the demand of the main service of LASIK eye surgery. Essentially, if patients notice that the complement’s price to LASIK eye surgery is rising, this may deter them from getting the surgery at all. Overall, factors which can affect a patient’s demand for LASIK eye surgery and their complement is if associated costs, perceived hassle, or the perceived dependency outweigh the benefits for a consumer. 5. Identification and Discussion of Economic Factors There may be some economic factors that might lead to a shift in the demand curve for LASIK eye surgery. The income of individuals and the wealth of the nation can determine the demand for goods and services. Since LASIK eye surgery is an elective surgery, changes in income make a big difference in the demand. For example, if a consumer’s income increases there is often a rise in demand for healthcare services. Comparatively, if a consumer’s income decreases this can affect their ability to afford the surgery, thus resulting in a decrease of demand. Some other factors which can shift the demand curve are consumer expectations about

future prices (UMGC). If consumers perceive that future prices will rise in the future, this will decrease their demand for LASIK eye surgery.

References Lee. R. (2019). Economics for healthcare managers. (4th ed.). Health Administration Press. UMGC. (n.d.). Week 2: The Demand for Health Care . learn.umgc.edu. https://learn.umgc.edu/d2l/le/lessons/918470/topics/31725409

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