Chapter 22, Problem 1DQ

To determine

Health care industries in the USA.

Explanation of Solution

Rising expenditures on goods such as household appliances or education are considered as economically desirable because the consumers are willing to pay the price for these goods. In addition, the production of these goods (appliances or education) is expanding under a relatively competitive market conditions. But there is concern about rising expenditures in the health care industry in the USA.

There is a concern about the same expenditures in the health care industry because of a unique feature of the health care market. On the demand side, there is an imperfect competition in the sense that the buyers have different information about the services needed or the fees that will be charged for the services. On the supply side also, there is an imperfect competition in the sense that the doctors control much of the provision of health care.

Moreover, in context of health insurance, the third-party insurance companies pay the direct costs of most health care on a fee-for-service basis. That is, the consumer pays less than the full price at the time of consumption. This leads to overconsumption. This overconsumption by the insured people may lead to the problem of moral hazard. In short, the economists are concerned about the health care in the USA due to the problem of inefficient allocation of resources in the health care industries.

Economics Concept Introduction

Concept introduction:

Facts about the US health care: The US health care industry has 17 million workers, in5,800 hospitals. In the USA, most of the people have private health insurance. In recent years, the spending on health care facilities has increased (may be due to the high cost and price for health care).