Chapter 6 Cost and Supply Curve

Supply: costs, economies of
scale and the supply curve

Health Economics
The curve is depend on Your
Compintation of 2 things : supply will be in the selling side
1-variable corset: it’s change and the demand will be in the
2-fixed cost: not change buying side and need willingness
to do the process
For example, if you hair a clinic

with 10 doctors and 20 nurses,
the salary of them will be fixed ,
however, the variable cost is the
number of patient. If the number
of patient lower the cost of the
Preparing for the meal of guests care provided will be lower, so
is depend on the number of them the care provided(cost
so the cost will change variable ) change with change
patient.
The amount of vaccine i provided will
vary, when there one patient, the cost of The total cost is : the salary of
vaccine will be low , but if I have 100 the health provides (fixed) + the
patients, the cost for the vaccine or other cost of the health care depend
equipment will be high on the number of patient
(variable)
The cost of electricity when you do a

party , it wii not change according to the
number of gusts
Ex, Salary of nurses

Cost functions
The cost I need to provide the
supply what I want to sell (supply)
• Cost functions show the relationship between total costs and output.
• Fixed costs
• remain constant Ex, When I open a clinic and no patients
• incurred even when output is zero come , so still I have to pay a salary for
the doctors and nurses
Ex , the poor people will still to get
• Example: What inccured? vaccine and consultation even though

income situation
• Personnel Salary of personal
• Beds and other furnishings When I open the clinic , I have to buy all necessary thing like
beds and other equipment , even when output is zero
• Equipment
Cost functions
• Variable costs When i have a lot of patients in my clinic , I need to pay for
additional beds for them , as the number of patient
• increase with the level of output increase (output) , the production (cost) will increase
(direct relationship).
Ex, if I had 100 patients per vaccination I would
need more vaccines and I will be paying for the
• Example:
costs for the vaccines.
• costs associated with each patient For example, I cannot give the same needle of vaccine with more than one
patient, each patient has his own needle of vaccine, so when I have more
patients, I need to pay for getting more needles for them
• the cost of needles and syringes, dressings and medication The amount of drug given to a child
is different from the amount of drug
given to adults
Each of them their cost different to each patient
• vary with the number of patient

So the difference between fixed and variable,
If the doctors get money from salary (fixed) not based on the number of patients
, even the doctors have or have not patients, the amount of the money will be
fixed
If the doctors get money from capitation or based on the number of patients
(variable) , depend on the number of patients
The supply curve
• a supply curve is used to show the relationship between

quantity supplied and price
The quantity I will sell it The price i will sell the supply
• reflects a producer’s willingness to sell at each price and

therefore the cost of production
The supplier will not be willing to sell his good with lower price than the
production cost
If the production cost for vaccine per one patient is 100 SAR
I will not be willing to sell the vaccine with 90 SAR because I will lose
money (beakeven ) not profit
I will be willing to sell it with 110 SAR OR MORE
The supply curve
• marginal cost is the minimum price that a producer would

receive to persuade them to sell an additional unit of the
good produced
If my clinic has just 10 beds for 10 patient, then there is a demand increasing it similar to your marginal utility
for additional beds , so would I will be willing to put new beds in my clinic (the So, the marginal cost is the amount of
cost additional beds) , also I need to consider paying to the doctor and If I money we'll measure my willingness to
need additional nurses when increase the number of beds . put another unit
• the supply curve is the marginal cost curve.

The supply curve
• the supply curve illustrates the relationship between

what a producer is willing to produce and the price
level we're considering the price against
the level of the quantity that we can
produce.
The supply curve
• the supply curve illustrates the relationship between what a producer is

willing to produce and the price level
• When the good is being sold at a low price, only a few suppliers would
be willing to sell it, thus the quantity supplied will be low.
Ex, produce a vaccine for monkey box with 100 SAR per patient.
If I sell it with 100SAR or lower(90Sar) , i will not earn a profit.
So i will not be willing to sell it in this price i as a supplier need to sell the
product with higher price to get money.
The different between production cost and the price of
The supply curve quantity supplier is producer surplus
If the producer surplus is higher , the more willing to

conteniue to produce and sell the goods
Producer surplus is similar to the profit

that you would earn when you sell your
produced good
• When the price exceeds the marginal cost there is a producer

surplus
• In this case more suppliers would be willing to sell the good,

thus supply will be high.
The supply curve
• Firms will only find it profitable to raise output if they can
sell the good at a price high enough to cover their costs.
Another name for producer surplus
• This translates into economic profit – i.e. total revenue minus

total cost is greater than zero that it's the difference between the selling
price and the production cost
Not there any profit for the
good i spend for it to
produce it (break even) Quantity of good that i
willing to produce
main determinants of supply
Memorize them
Increase price,increase production ,increase sell
• the price of the good

• the prices of inputs used to produce the good (e.g. raw food, people’s
time)
Complementary good
• the prices of related goods

when increasing production of comp good
,increace price of complementary good,
and will increase supply
• expected future prices

• the number of other suppliers
• technology
The supply curve
• The supply curve illustrates that
there is positive relationship
between the price of a good and
quantity supplied
• (everything else remaining the
same).
the higher would be the quantity of

produced and my price will be
higher, Because to higher profit for
me
There are copmintation
S1 provid 3 burger with 10 but
another supplier s2 provid 5 burger
with 10 Sr so the people will go to S2
, so s1 will do discount and make 1
burger because he doesn’t want to
lose her money, he will make it with
3 sr
When increace quantity , the
supply curve will go to right
The curve will go the left

when the quantity reduse
Complications of Supply in Health Care
• However, producers of health care around the world include

government agencies and non-profit organizations as well as profit-
making firms.
Complications of Supply in Health Care
• Even where producers are largely private there is a lot of government

intervention:
Examples: How the government affect the supply and production costs ?
• Subsidies
• Price regulation
The government will say no consultation fee beyond 100, the government
said so if I'm a provider , I charge 150 I can be penalized or I can be sent to
jail for overpriced.
• Public finance This doesn't affect you so much, because this one is based on
taxes. So in the US, the price of Coca Cola differs from one state
to another. minor differences, but it's because some of it is
actually in finance of the taxes.
Supply in Health Care
• Almost every individual patient receives a unique ‘bundle’ of services

that makes up their treatment – health care is not a homogeneous Heterogeneous
product.
• It is very difficult to measure the inputs and the outputs of health care.
The time (supply);that spend to one
patient is different from another
Supply in Health Care
• Unlike manufactured goods, health care is provided by

groups of professionals who provide training, regulations
and ethical codes which will all affect the provision of
health care. I will not prevent supply for the patient just
because he cannot pay for the cost , ex, the
vaccine we will provide it to all, we will not prevent
it because the patients cannot pay for it
So we should consider ethical cods when we

provide healthcare. Like equity, beneficence, non
maleficancé

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Supply: costs, economies of

scale and the supply curve

For example, if you hair a clinic

The cost of electricity when you do a

Ex, Salary of nurses

Ex , the poor people will still to get

• Example: What inccured? vaccine and consultation even though

• Personnel Salary of personal

• vary with the number of patient

• a supply curve is used to show the relationship between

• reflects a producer’s willingness to sell at each price and

• marginal cost is the minimum price that a producer would

• the supply curve is the marginal cost curve.

• the supply curve illustrates the relationship between

• the supply curve illustrates the relationship between what a producer is

The supply curve quantity supplier is producer surplus

If the producer surplus is higher , the more willing to

Producer surplus is similar to the profit

• When the price exceeds the marginal cost there is a producer

• In this case more suppliers would be willing to sell the good,

• This translates into economic profit – i.e. total revenue minus

Increase price,increase production ,increase sell

• the price of the good

• the prices of related goods

• expected future prices

the higher would be the quantity of

The curve will go the left

• However, producers of health care around the world include

• Even where producers are largely private there is a lot of government

• Almost every individual patient receives a unique ‘bundle’ of services

• Unlike manufactured goods, health care is provided by

So we should consider ethical cods when we

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