Economic Concepts. The Most Basic Term Paper

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Price ceilings only shift the burden of achieving average cost equilibrium around to different people within the system.

The author does touch on reduced amounts of competition as a factor in increasing costs. There was more competition in the 1990s, leading to lower costs and lower cost growth. Competition can be expected to lower costs, but to some extent it might not be sustainable. There are issues with supply in health care markets, for example. If there are insufficient numbers of providers, the equilibrium point is going to be higher. If demand is higher -- whether the effects of an aging population or aggressive pharma marketing campaigns to get more people on more pills -- that also drives the equilibrium higher. It is at the equilibrium point where the best solutions lie. The article dances around this to a point -- it gets to the part where it is explained how price ceilings do not shift the equilibrium point and are therefore unlikely to be successful in the long run. The next step in that line of thinking is that the true solutions to health care cost increases like with increasing supply, increasing competition, reducing demand and increasing information among buyers so that health companies cannot get away with price gouging.

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Only by shifting the equilibrium price downward will health care costs be lowered in a sustainable manner. The author is right in concluding that there is no consistent evidence to support the merits of price ceilings, noting the complex issues involved, but does not go far enough.

Overall, the article provides a cursory discussion of health care pricing. The complexity of the issues demands a deeper understanding of the concepts of opportunity cost, price ceilings and equilibrium pricing. It is also worth remembering that the hybrid private/public system that the U.S. has is more or less unique in the world, so drawing conclusions from the experiences of other countries is inherently difficult. It is best, perhaps, not to look at Europe or Canada for evidence but for different experiences and programs in the U.S......

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