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PH 126 Section 2 January 30, 2014

Intro, ACA, and Demand, Supply, Marginal Analysis

Key Questions From Lecture (You should be able to answer these!) Lecture 1 – Health Care Expenditures: • Why is the health care market different than other markets? • How much does the US spend on health care? o Compared to other OECD nations? o Is this a problem? o What are the main drivers of cost? • Do our higher costs result in better outcomes and quality? • How much of an impact does health care coverage have on overall health?

Lecture 2 – ACA: • What historical events led us to the ACA? Why do these matter? • What is the individual mandate? o What did the Supreme Court have to say about it? • What does the ACA seek to do and how does it do so? • Why will there still be people who lack insurance? • What are the pros and cons so far?

• What challenges will we see for enrollment going forward? • Where has implementation been successful? Difficult? Why?

I.
Supply
and demand The supply and demand curves illustrate two different relationships between price and quantity: the supply curve slopes upward and the demand curve slopes downward.

That producers supply more when the price is higher is called the law of supply. That consumers demand less when the price is higher is called the law of demand.

An equilibrium is reached when the quantity supplied and demanded are equal at a given price. In the graph above, the equilibrium is denoted by the star.

1

S

II.
Changes
in equilibrium price and quantity: movements along a curve versus shifts in a curve We don’t observe supply and demand curves; we observe prices and quantities. Suppose we were to observe the equilibrium move “southwest”—did it move along the supply curve, or was there a shift in the demand curve?

Here is the golden rule: changes in the price of the good in question result in movements along a curve. Changes in anything else (preferences, prices of substitutes and complements, weather, witches’ spells) result in shifts in a curve.

Note: For equilibrium to…