Question

what is the price elasticity of demand? why is understanding the elasticity of demand important for health care managers?

Answer 1

The price elasticity of demand is a measure used to determine the demand of goods in relation to increase or decrease in price. It is a measure to identify how quantity of goods in demand is affected by increase or decrease in its price. Usually increase in price results in decrease in demand of goods.

Healthcare managers usually decide the price of medical services and facilities provided by healthcare industry like physician visits, outpatient charges, inpatient charges, operation theatre charges, ambulatory charges. The elasticity of demand for various services will help them identify services whose demands are not affected by increase in price or are inelastic and services that are affected by increase in price or are elastic. This will help yield positive outcomes and generate revenue for healthcare.