Marginal Utility

In order to maximize total satisfaction, the consumer must consume products in such combination that the marginal utility/price of each good is equal. (i.e., MUa/Pa = MUb/Pb =MUc/Pc = ... = MUn/Pn) While it is true that measuring marginal utility is at best difficult, the consumer does have an inherent feeling regarding the marginal utility received from each good or service being consumed.

To a degree, the current health care crises in the United States is related to third-party payment of health care and to the marginal utility maximizing principle. While somewhat biased, the article "Expansion of Third-Party Payment is the Source of the Health Care Crisis" discusses the effect third party payment has had on the usage of health care. Of course, this usage is dependent on the utility maximization principle. After you have read this article, answer the following questions with your partner(s).

  1. When and why did the phenomenon of third-party payment in health care begin? 

  2. What does "third-party payment" mean?

  3. How does third-party payment affect the price the consumer pays for health care?

  4. What effect does third-party payment have on the quantity of health care demanded? Why? (Make certain that your answer relates to the utility maximizing principle.)

  5. How would the elimination of (or at least the decrease in) third-party payment help lessen the health care crises? (Again discuss the utility maximizing principle as part of your answer.)


    6.  
The government wants you to design a program that will guarantee health care to everyone in the United States and yet will keep the price of health care at a reasonable level. What actions would you include in your program? What are the advantages of your program and the disadvantages of your program compared to the current private insurance programs that make up most of the U.S. health care program? Be prepared to explain your program to the rest of the class. 


 
 

The aging U.S. population is intensifying the health care "crisis". Explain how and why the following markets are affected by this "aging" population.

  1. The market for medical personnel (doctors, nurses, physical therapists, etc.)
  2. The markets for prescription drugs and pharmacists
  3. The market for assisted living facilities
  4. The market for in-home health care

    5.  

     

When you have answered the above questions, exchange your answers with another group and comment on each other's answers.

McConnell Website
Economic Links
My Homepage
ECO 212

Last updated February 2, 2004

Send comments to: jbremer@oakton.edu