Economics Concepts of utility and elasticity in healthcare

Economics Concepts of utility and elasticity in healthcare
The concepts of utility and elasticity are important in healthcare. The principle of utility, when it comes to health economics, is defined as a personal value which is a reflection of how that person perceives a certain health outcome. Utilities are measures of scale, ranging from zero to one. Zero is a reflection of the states of health similar to death while one reflects states of good health (Sloan & Hsieh, 2017). To be elastic means to be flexible. Elasticity in economical terms is the ability of consumers, providers, and services to change according to price adjustments. It refers to how health care can get back to its feet even after hitting several ups and downs. There are four types of elasticity.
Economics Concepts of utility and elasticity in healthcare

They include price elasticity of demand; cross elasticity of demand; income elasticity of demand and price elasticity of supply (Health Economics, 2014). These different types of elasticity affect how health care in a certain health facility is handled.

The measures of utility are known as health dimensions. These health dimensions, also known as attributes, help to determine where an individual lies in terms of their perception of certain health outcomes. They include pain, quality-adjusted years of life, disability-adjusted years of life, healthy year equivalents, physical well-being, psychological well-being and clinical presentation of symptoms (Fuchs, 2018). Examples of elasticity include the availability of health care workers, pricing of drugs, the effectiveness of a certain procedure, availability of equipment and the demand for medical services.

Elasticity is based on the principles of supply and demand. When there is demand for a certain service or good, it means that the people in need of that service are many. Demand affects supply. Ideally, the higher the demand is, the higher the supply should be. In reality, this is not the case. There are certain factors affecting the demand-supply relationship (Saunders, 2019). Competition is one such factor. When there are several alternatives, there is always one that comes out best, hence the demand for it. Price fluctuations affect the supply of certain products by certain companies. Different seasons call for different products, thus affecting demand and supply. Trends in the quality of produce affect its demand and supply in the market.

Economies of scale refer to the profits an organization makes when it increases the production of goods and reduces the selling price (Lakdawalla et al., 2018). Economies of scale can be both internal and external. Internal economies of scale are within the organization and are unique to it. They find ways of cutting costs internally but still achieve better production. This could be influenced by buying goods in bulk or special technological advantage. External economies of scale are affected by matters outside the company. They include effects of taxes and partnerships that necessitate such economies of scale. Economies of scale make profits due to several reasons. One reason is that there is specialization observed. Such specialization allows for better productivity when combined with modern technology. Second, most of such companies spend much less capital to come up with the product. Hospitals also make use of economies of scale to outsource more funds with less expenditure. This results in more profit per unit cost.

Examples of shifters in the health care sector include patients, medication, and services offered. The types of patients in a certain area determine the type of health facility in the area. If there are many patients with a certain disease, say hypertension, it will affect the types of services offered in the health facility in that location. Most of the medication found there would be for the treatment of hypertension. Most employees of the health facility will include more health practitioners conversant with hypertension (Koijen,  Philipson & Uhlig, 2016). When it comes to medication, as a shifter, different companies supply different types of medication. They come with different prices according to the company. The liking of a particular company is developed according to the price, the availability of the drug and how it affects the patient (Sloan & Hsieh, 2017). In most cases, patients usually buy a drug because it is cheaper.

Many healthcare institutions are applying economic concepts to run their organizations. The concept of economies of scale is observed in most hospitals. An example can be observed in the outpatient department. The time it takes to be seen by a doctor is set at say 30 minutes. To cut down on expenses, the hospital uses a nurse aid instead of a degree nurse to be the doctor’s assistant, because they are cheaper. To increase profits, the more the visits to the doctor, the more money the hospital gets. Hospitals also tend to buy goods in bulk and from the producer companies because it is cheaper. When they sell the products to patients, they get more profit. The concept of utility has been used to develop evidence-based guidelines for patient management. It has also been applied in the development of individualized patient care according to needs (Phelps, 2016).

In conclusion, economical concepts are important in the field of health (Phelps, 2016). They contribute to the well-running of the health institutions ensuring that there is a balance between financial expenditure and financial gain. It is applied in all health facilities as it is a crucial component to budgeting.



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Lakdawalla, D. N., Doshi, J. A., Garrison Jr, L. P., Phelps, C. E., Basu, A., & Danzon, P. M. (2018). Defining elements of value in health care—a health economics approach: an ISPOR Special Task Force report [3]. Value in Health21(2), 131-139.

Phelps, C. E. (2016). Health economics. Routledge.

Saunders, K. M. (2019). Essays on health economics.

Sloan, F. A., & Hsieh, C. R. (2017). Health economics. MIT Press.