Define externalities and explain their significance to health economics. provide a relevant example and explai

Question

this relates to healthcare economics.

Answer 1

DEFINITION OF EXTERNALITIES:

In economics, an externality is an effect from one activity which has consequences for another activity but is not reflected in market prices. Externalities can be either positive, when an external benefit is generated, or negative, when an external cost is generated from a market transaction.

An externality occurs when a decision causes costs or benefits to stakeholders other than the person making the decision, often, though not necessarily, from the use of a public good (for example, a decision which results in pollution of the atmosphere would involve an externality). In other words, the decision-maker does not bear all of the costs or reap all of the gains from his or her action. As a result, in a competitive market too much or too little of the good may be consumed from the point of view of society, depending on incentives at the margin and strategic behavior. If the world around the person making the decision benefits more than she or he does, such as in areas of education, or safety, then the good will be under-provided (or under-consumed); if the costs to the world exceed the costs to the individual making the choice in areas such as pollution or crime then the good will be over-provided from society's point of view. The "point of view" is specified as the greatest maximal utility for society.

This should be contrasted with purely private economic agreements that do not affect third parties, where the assumption may be made that, if each party is acting in his or her own interests (as defined by utility) and there are no other major market failures, the agreement or exchange improves overall utility for society. Put more simply, if an economic transfer between two parties enhances the utility of both without negatively affecting the utility of any third party, the collective utility of society is improved; if the utility of others is harmed, it is no longer unambiguously clear that society's collective utility has increased, and may have decreased.

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BACKGROUND INFO ON HEALTH ECONOMICS:

The five health markets typically analyzed are:

* Healthcare Financing market
* Physician services market
* Institutional services market
* Input factors market
* Professional education market

Topics related to various aspects of health economics include the meaning and measurement of health status, the production of health and health care, the demand for health and health services, health economic evaluation, health insurance, the analysis of health care markets, health care financing, and hospital economics.

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EXAMPLE OF HEALH ECONOMICS:

Although assumptions of textbook models of economic markets apply reasonably well to health care markets, there are important deviations. Insurance markets rely on risk pools, in which relatively healthy enrollees subsidize the care of the rest. Insurers must cope with "adverse selection" which occurs when they are unable to fully predict the medical expenses of enrollees; adverse selection can destroy the risk pool. Features of insurance markets, such as group purchases and preexisting condition exclusions are meant to cope with adverse selection.

Insured patients are naturally less concerned about health care costs than they would if they paid the full price of care. The resulting "moral hazard" drives up costs, as shown by the famous RAND Health Insurance Experiment. Insurers use several techniques to limit the costs of moral hazard, including imposing copayments on patients and limiting physician incentives to provide costly care. Insurers often compete by their choice of service offerings, cost sharing requirements, and limitations on physicians.

Consumers in health care markets often suffer from a lack of adequate information about what services they need to buy and which providers offer the best value proposition. Health economists have documented a problem with "supplier induced demand", whereby providers base treatment recommendations on economic, rather than medical criteria. Researchers have also documented substantial "practice variations", whereby the treatment a patient receives depends as much on which doctor they visit as it does on their condition. Both private insurers and government payers use a variety of controls on service availability to rein in inducement and practice variations.

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P.S. I hope I helped at least a little bit :-)

Answer 2

Define Externality

Answer 3

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Define externalities and explain their significance to health economics. provide a relevant example and explai
this relates to healthcare economics.

Answer 4

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Answer 5

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Answer 6

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