Question

Emergency room health care tends to have a demand curve that is very steeply sloped, while elective surgery does not. Why? Also, health care insurance and vacation spending tend to have a negative cross price elasticity of demand for many people. Why?

Answer 1

That's interesting about health care and vacation spending--I've never heard that before (but I guess it makes sense). I'll give an example first to clarify things a little.

Let's say you spend $10,000 a year on healthcare and you've more or less spent that same amount every year for the past ten years. Now imagine that THIS year your total spending on healthcare is $15,000. Since you've previously have set aside $10,000 in your budget for healthcare spending, that extra $5,000 has to come from somewhere else in your budget. And, in that case, it's probably easiest to just cancel your $5,000 vacation and use it instead for healthcare spending.

Also, for the emergency room question, think about it this way: If I am in a car accident and I need to be rushed to the emergency room, I'm not doing any price shopping. So for me (and most people, I imagine), the first thing on your mind is "surgery"--the bill is secondary. Sure, I might hope for the bill to be manageable, but, really, I'm getting that surgery whether it costs $10,000 or $50,000. With elective surgery, however, you can be more selective...

Answer 2

A steep demand curve implies inelasticity. Emergency room health centes are a must for people and needed (cannot be lived without). So even if the price rises for that service their will be little reaction for consumers.