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Homework answers / question archive / Hall and Jones (2007) study how the elasticity of medical spending with respect to health differs across age groups
Hall and Jones (2007) study how the elasticity of medical spending with respect to health differs across age groups. Explain how this elasticity is calculated and what higher values indicate in terms of medical care productivity. Also, discuss how and why medical care productivity changes across age groups.
The price elasticity of medical service is defined as the percentage change in quantity of medical care demanded divided by the percentage change in the price of the same commodity. Most academics believe that the price elasticity for medical services is between 0 and -1. This means that if price increases by 10%, the demand for medical services decreases, but by less than 10%. This means that medical goods are inelastic.
One can also measure the income elasicty for medical services.Income elasicity measures the percentage change in the demand for medical services as income increases. If the income elasicity is greater than 1,medical services are a luxury good. This means that as people get richer, they want more of the good. Estimates of income elasicity range from 0 to 1.6; meaning that reasearches do not know medical services are elastic or inelastic with respect to income.
