Question

1. Physician-Induced Demand
   1. Explain what supplier-induced demand is.
2. 2. Discuss whether supplier-induced demand necessarily results in higher prices for medical services, both verbally and graphically.

Answer 1

A. Supplier induced demand may occur when asymmetry of information exists between supplier and consumer. The supplier can use superior information to encourage an individual to demand a greater quantity of the good or service .they supply than the pareto efficient level, should asymmetric information not exist.the result of this is a welfare loss.The doctor-patient relationship is key to the practice of healthcare and is central to the delivery of high quality efficient care while maintaining costs.Controversy surrounds the extent and existence of supplier induced demand.

B. Supplier induced demand can increase healthcare expenditure, increase financial pressures on the public health insurance programs, and increase the share of national resources spent on healthcare.And all of these can occur with few benefits for the health of the population.One of the defining characteristics of the healthcare market is the large knowledge, patients rely on doctors for advice on the proper amount and type of service needed to maximize their health.Doctors, on the other hand want to maximize their own utility function.