Question

For a hospital, in what way may it be useful to know about the demand elasticity for healthcare services?

Answer 1

Ans) Elasticity of demand is the responsiveness of quantity demanded to change in price. Demand elasticity is determined by various factors ÷

• Necessity of the product.
• Durability of the product.
• Time.
• Availability of substitutes etc.

If the quantity demanded of the product is not much responsive to the price, then it is said to be inelastic. If quantity demanded responds significantly to the price change, then it is said to be elastic.

Knowing the elasticity of the product helps determine the price of the product and also whether or not to increase the price of the product.

Here, to know the price elasticity of demand of the service is useful because if the service has low elasticity, then the firm can charge dearly for that service. And if the elasticity os high, it will keep the price low, in order to attract more customers and increase the revenue. Eg- test of cancer has less elasticity ,while, test for diabetes has relatively high elasticity.