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Demand for Medical Care The demand for medical care is derived from our demand for good health Michael Grossman was the first to do econometric research on this topic Grossmans work established two approaches for consideration In the first medical care is viewed as an input in the production function for health and in the second as an output produced by medical care providers Henderson p142 There are two main factors that determine the demand for medical care The first is the patient factor This includes a patients health status demographic characteristics and economic status The second is the physician factor This is an interesting topic because it introduces the principal patient-agent physician problem We are faced with the problem of diminishing marginal returns for health At a certain point we can only produce so much health The question we need to ask ourselves is what is the optimal budget for medical care This is a question that can not be easily answered due to our changing demand for medical care If we get sick we demand more medical attention Or if we choose to live more dangerously this will also increase the demand Therefore who should pay for these increased costs for medical insurance Medical care spending is not the only thing that improves health Other factors affecting health status such as life-style environmental pollution and technological developments will shift the total product curve TV Figure 41 on the next page graphically shows that health status obeys the Law of diminishing productivity The graph below the total product curve is the marginal product curve The derivative of the total product curve is the marginal product curve This curve represents the marginal change in health status You can see this curve is negatively sloped and can be negative The maximum point on the total product curve is the total amount of health that we can get out of life You may know from calculus that
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