When we speak of “health care,” we are speaking of the entire health-care industry This industry produces services ranging from heart transplant operations to therapeutic massages; it produces goods ranging from X-ray machines to aspirin tablets Clearly each of these goods and services is exchanged in a particular market To assess the market forces affecting health care, we will focus first on just one of these markets: the market for physician office visits When you go to the doctor, you are part of the demand for these visits Your doctor, by seeing you, is part of the supply Figure 4.15 "Total Spending for Physician Office Visits" shows the market, assuming that it operates in a fashion similar to other markets The demand curve D1 and the supply curve S1 intersect at point E, with an equilibrium price of $30 per office visit The equilibrium quantity of office visits per week is 1,000,000 We can use the demand and supply graph to show total spending, which equals the price per unit (in this case, $30 per visit) times the quantity consumed (in this case, 1,000,000 visits per week) Total spending for physician office visits thus equals $30,000,000 per week ($30 times 1,000,000 visits) We show total spending as the area of a rectangle bounded by the price and the quantity It is the shaded region in Figure 4.15 "Total Spending for Physician Office Visits" The picture in Figure 4.15 "Total Spending for Physician Office Visits" misses a crucial feature of the market Most people in the United States have health insurance, provided either by private firms, by private purchases, or by the government With health insurance, people agree to pay a fixed amount to the insurer in exchange for the insurer’s agreement to pay for most of the health-care expenses they incur While insurance plans differ in their specific provisions, let us suppose that all individuals Attributed to Libby Rittenberg and Timothy Tregarthen Saylor URL: http://www.saylor.org/books/ Saylor.org 216