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Why is the demand for healthcare a derived demand? A primary care physician has to increase...

Why is the demand for healthcare a derived demand?

A primary care physician has to increase her office's average visit price by 5 percent due to higher practice expenses, including the need to provide staff wage increases to remain competitive. Will total revenues increase or decrease as a result of this action? Discuss the concept of price elasticity to substantiate your answer.

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Answer #1

Derived demand refers to those goods which are demanded by you from consumer as well as producer perspective. You as a consumer needs good health while you as a producer needs good health such that you can work more and earn more. This connection between demand of healthcare to supply more of goods produced by is you is derived demand.

Demand for healthcare is inelastic (whose demand remains the same or not change by large when price changes) as even though price rises by large, patients will go to doctors to treat themselves. If doctor raises visit price by 5%, its total revenue is going to rise as patients will still go to doctors and pay high visit fee.

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