Monday, December 14, 2009

Terminology and Doctoral Level Education

Using, and knowing your terminology....

I am an economics geek, I always have been. Can't help it, it's what moves me, draws me towards policy, and shapes how I see the world.

As many of you know, I am completing my doctoral degree now, and am in the midst of classes. One of which currently is, “Health Policy Development”...Yeah, I know, for me this is like...JACKPOT...I even have my professor asking ME for tips. Of course, other courses are not this far up “my alley”.

But I digress, I recently had a reply to a post of mine discussing free market economics and healthcare (for those of you who don’t know, I am only 3 classes short of my BS in economics, and it is one of my main interests as pertains to healthcare). My classmate, in essence wrote, “the elasticity price in health care cost has escalated. In fact, since year 2000, the premiums for family coverage have raised by 87%” although I am paraphrasing to a degree in order to preserve anonymity.

Some of my classmates have stated that perhaps I was a bit vigorous in my reply.
However, my thought is, at this level of education. If you are going to state something, you better know what you are saying, and you better know how it relates, and is used, and in what context. This isn’t undergrad, this isn’t even graduate level, this is terminal degree level. Using terminology incorrectly needs to be addressed.

My reply was:

Not to be nitpicky, but there is no “elasticity price in healthcare costs”

Price Elasticity refers really to the price elasticity of demand, and to a lesser degree supply, and is a tool measuring the responsiveness of a function or commodity to changes in parameters or, in this case, price. Simply put, the amount to which a supply or demand curve changes relative to changes in price determines the elasticity. Products or goods which are considered essential, like healthcare, or utilties (electric, gas, water) have scores of 0 or -1. This indicates inelasticity which means the goods are NOT SENSITIVE, or at least, not AS sensitive to price changes, because people will continue using them regardless of cost. This is part of what is driving the escalation in healthcare costs today. Additionally, this means that market forces, will be LESS likely to change behaviour.

Now, if we look at the electronic goods market, like TV’s and Computers, their elasticity scores are much higher. This denotes an elastic good, and this means, that if prices rise, demand will fall. This is why you can buy a 47” LCD HDTV for under 1000 dollars now.

If we really want to get fancy, we can look at the math:

PED = (∆Q/∆P) x P/Q. (∆Q/∆P)

But that is really inconsequential for our purposes.

I don’t know, but I don’t think I was harsh in the least.

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