What impact would a price ceiling on physician fees have on the market for physicians' services?i have to explain my question so read it very carefully please.. 1.i am giving a situation u have to...

What impact would a price ceiling on physician fees have on the market for physicians' services?

i have to explain my question so read it very carefully please..

1.i am giving a situation u have to describe the demand and supply for this situation assuming we are in competitive market and describe the effect on equilibrium price and quantity for it ...

"A price ceiling placed on physician fees on the market for physician service"

for this condition describe the effect please. it a question from health economics.....help me to ready my paper

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

A price ceiling for physicians' services will have the effect of causing a shortage in the market for those services.  The quantity demanded will be lower than the quantity supplied and there will, therefore, be a shortage.

When a price ceiling is imposed on a market, it is set below what the equilibrium price would normally be.  To see why this will cause a shortage, draw yourself a simple supply and demand graph.  Your x-axis is quantity and your y-axis is price.  Your demand curve slopes downward from left to right and your supply curve slopes upward.

Now draw in a horizontal line to represent the price ceiling.  Make sure it is below the place where your supply and demand curves cross.  Look at where that line intersects the supply and demand curves.  You will see that it intersects the supply curve at a lower quantity than the quantity at which it intersects the demand curve.  This shows that, at that price, there will be a greater quantity demanded than supplied and there will be a shortage.

Why is this?  When the price is artificially capped, physicians' services become cheaper than they would be.  Now, all of a sudden, consumers can afford the services and there is a greater quantity demanded for those services.  But what about the physicians?  They are now being forced, in essence, to take a pay cut.  They will now be less interested in providing services because they do not make as much money for doing so.  In the long run, fewer people might choose to become doctors because they can't make enough money to make it worth the effort.  So then there is less quantity supplied even as there is more quantity demanded.  This leads to a shortage.

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