Question

What elements caused the supplier induced demand? Why is increasing demand not always profitable for physicians?

Answer 1

In the context of physicians, a supplier induced demand can be caused by a lot of factors :

• Information asymmetry between physician and patients
• Low health literacy level of patient, causing physicians to benefit off of such patients
• Insuffient knowledge of physician, leading to the patient needing over usage of services

The increasing demand is not always profitable for physicians because this often leads to a deadweight welfare loss, due to overconsumption and overproduction of services or goods. This is a direct result of the loss of producer surplus for the physicians.