Question

Suppose the supply curve of medical services is perfectly inelastic. What is the shape of supply curve (e.g. vertical, horizontal, upward sloping)? Please also analyze the impact of a decrease in consumer income on the market price and quantity of medical service.

Answer 1

If the supply curve of medical services is inelastic it means that there will will not be a lot of change in the quantity supplied with the change in the price. Elasticity of supply means the responsiveness of change in quantity supplied with respect to change in the prices.

If the supply is elastic it means that the supply curve will be vertical.

The effect of decrease in income on the market price and quantity can be seen by the income effect. The income effect is the change in the demand for a good or a service with respect to the change in the purchasing power of a consumer which is a result of change in the real income.

Explanation:

This means that if there is a fall in the wages the the purchasing power of a consumer has dropped which means that can no longer purchase the goods and services they were producing. But since healthcare is a necessity good and the demand is mostly inelastic then the change in the real income will not be affect how much does the consumer will be demanding the healthcare. Necessity goods are less sensitive to the change in income. People will buy these goods irrespective of what they are earning. For any other good a decrease in the income will decrease the demand.