Econ Lecture 1

  1. Three fundamental quesitons of economics
    • What to produce with limited resources?
    • How shall the resources be used in production?
    • Who shall receive the resulting goods?
  2. Economics
    The study of how individuals and societies allocate their limited resources in attempts to satisfy their unlimited wants.
  3. Scarcity
    wants are greater than goods available to satisfy them
  4. Allocation
    • how to produce
    • what to produce
    • who will produce what
    • who is to receive what is produced
  5. Distribution
    how much goods and services particular individuals receive
  6. Inputs
    commodities/services used for producing goods and services
  7. Outputs
    useful goods and services that are produced for consumption or further production
  8. Factors of production
    another term for inputs
  9. Three categories of inputs
    • Land
    • Labor
    • Capital
  10. Pharmacists provide:
    • Goods and service
    • Medications
    • Counseling
  11. Production-Possibility Frontier (PPF) Curve
    • Societies have limited resources and technology
    • Points outside the curve are unachievable.
    • Points under the curve indicate that the economy has not attained production efficiency
  12. Opportunity Cost
    cost of forgone alternatives of a decision
  13. Opportunity costs for pharmacy students
    • Direct Expenditure
    • Tuition costs
    • Missing out on work
  14. Utility
    • Satisfaction obtained from purchasing a particular good or service.
    • Maximize utility within budget constraints
  15. Utility > Cost
  16. Utility < Cost
    No Purchase
  17. 1st utility is ____ than 2nd utility for the same good.
  18. Marginal utility
    Additional utility arising from consumption of an additional unit of the commodity
  19. when cost of a commodity exceeds marginal utility then _______.
    No purchase
  20. Law of diminishing marginal utility
    A point is reached where consuming additional units would increase total utility but at a decreasing rate as marginal utility declines.
  21. Law of Demand
    • the quantity people are willing and able to buy is inversely related to the price.
    • not the same as need or want.
  22. Characteristics of a demand curve
    • Negative slope
    • demand is higher at lower prices.
  23. Shift from right to left means demand _______.
  24. Factors influencing change in demand
    • price of related (substitute) goods (or complementary goods)
    • income of the consumer
    • number of consumers in the market
    • attitudes, taste and preferences of the consumer
    • consumer expectations with respect to further prices and incomes
  25. Substitutes
    Increase in price of brand name product = increase in demand for generic
  26. Complements
    Increased price of NSAIDS = decreased demand for antacids
  27. Consumer's Income
    Increase income = increased demand for goods
  28. Number of consumers
    Increase in population = increase in demand
  29. Attitudes, tastes and preferences
    Increase advertising = increase drug use
  30. Expectations
    Fear of flu vaccine shortage = increased demand for flu vaccine
  31. Less quantity demanded at each price
    Demand curve shifts to the left
  32. More quantity demanded at each price
    demand curve shifts to the right
  33. Normal Goods
    Increase income = increase demand
  34. Inferior goods
    increase income = decreased demand
  35. Law of Supply
    the quantity of produvers are willing and able to provide varies with the price
  36. Characteristics of a supply curve
    • Positive slope
    • positive relationship between price and supply
    • Supply is higher at higher prices.
  37. Shift from right to left of the supply curve means supply _____.
  38. Factors influencing change in supply
    • technology
    • number of sellers in the market
    • resource costs (materials and wages)
    • Prices for related goods
    • Sellers' Expectations
  39. Substitutes affect on supply
    Increase in reimbursement for generic = decrease supply of brand
  40. Joint products effected by supply
    Increase price of one product = increase in supply of a joint product
  41. affect of resource costs on supply
    increase production cost = decreased supply
  42. Affect of production technology on supply
    increase in technology = decrease in production cost = increase in supply
  43. Affect of the number of sellers on supply
    increased number of sellers = increased supply and decreased price
  44. Less quantity supplied at each price = supply curve shifts to the _____.
  45. more quantity supplied at each price = shift in supply curve to the _____.
  46. Elasticity of demand
    measure of the responsiveness of consumer demand to a change in price.
  47. Elastic Demand
    • price elasticity of a good is high
    • qty. demanded changes greatly in response to price changes
  48. Inelastic Demand
    • price elasticity is low
    • quantity demanded responds little to price changes
  49. Elasticity graphs
    • more horizontal line = elastic
    • more vertical line = inelastic
  50. If demand is elastic
    • increasing price would reduce total revenue
    • decreasing price would increase total revenue
  51. if demand is inelastic
    • increased price would increase TR
    • decreased price would decrease TR
  52. Unitary Demand
    A producer's total revenue does not change with the change in the price of the good
  53. What keeps price from rising infinitely?
    • Competition
    • related goods
    • government policies
    • Gov't intervention
    • managed care policies
    • consumer's ability to purchase
  54. Value of Elastic Demand
    Ed > 1
  55. Unitary Demand Value
    Ed = 1
  56. Inelastic Demand Value
    Ed < 1
  57. Importance of Elasticity
    • Connection between change in price to total revenue
    • Importance in determining what goods to tax
  58. Three determinants of elasticity of demand
    • availability of substitutes for the good
    • price of a good relative to consumers' incomes
    • number of alternative uses for the good
  59. Elasticity of demand for prescription drugs
    • Rx drugs have little substitutes
    • Small portion of the patient's income is applied to the cost of the Rx
    • Rx drugs have few alternative uses
  60. Rx drugs have ______ demand.
  61. Factors unique to Rx drug industry regarding elasticity of demand
    • decision maker
    • industry promotes differentiation of products
    • third-party payment plans
  62. Price elasticity of supply
    estimates how much the quantity supplied of a good changes when its price is changed
  63. Calculating Elasticity
    Ed = (Change in Q / [Q1 + Q2 / 2]) / (Change in P / [P1 + P2 / 2])
  64. Indifference curves
    shows consumer preference relative to their budget
  65. Consumer equilibrium point
    where the budget line is tangent to the indifference curve
  66. Market equilibrium price
    the point where quantity supplied is equal to the quantity demanded
  67. Market surplus
    shif in the demand curve to the left will reduce the quantity demanded of the product at every price
  68. Market shortage
    shift of the supply curve to the left reduces quantity supplied at each price
  69. Floor Price
    price is not legally allowed to fall below a minimum level
  70. ceiling price
    price is not allowed to rise above this maximum level
  71. Price discrimination
    • exists with the seller offers the same good or service to different buyters at different prices even though the price of production to each buyer is the same.
    • airline tickets
    • movie tickets
    • generics at walmart
Card Set
Econ Lecture 1
Economics of Health and Medicine