Microeconomic Analysis

Situation A

In both macroeconomics and microeconomics, the applicable principles of economics are relatively the same. The principles of economy are used by the participants in the economy to determine the level of participation and whether their involvements are viable (Frank & Ben, 2004). Economic calculations, on the other hand, are intended to attain; a candid analysis of the present condition of the entity/ industry as well as measuring the going concern of the entity/ industry. The following principles of economics shall be applied throughout this paper;

  • People choose
  • Every choice has a cost
  • Benefit /cost analysis is useful
  • Incentives matter
  • Exchange benefits the traders
  • Market works with competition, incentives, and property rights
  • Skills and knowledge influence income
  • Monetary and fiscal policies affect people’s choices, and,
  • Government policies have benefits and costs.

This paper analysis the above principles of economics on the basis of the case study that is highlighted below. The paper is being used by a student in the health industry in evaluating whether to continue pursuing the career path or to change the course. The aim of the paper is to show the physical application of the principles of economics and how decisions are made in microeconomics.

Case analysis

A California based organization has been carrying out study on the movements of health workers since 2008. The report (which is dated as back as 2004) indicate that the rate of physicians and other health workers has been on the decline since 2010 (MLTPL, 2014). This has raised fears among students in this industry on the viability of their careers. This is a microeconomics case which is dependent on one feature of an industry. The study has cited out the specific reasons that had caused high rate of movement in earlier years as; better remuneration, better working conditions and/or heavy burden of work. While it is yet to be established whether these conditions have changed, an analysis to determine the viability of the career is vital.

Demand Determinants:

A. Individual determinant analyzed for situation, with examples applicable to your situation

Vacancies to be filled; the most obvious source of employment for the persons who are not employed in a society is the need to fill vacancies that have been left by the vacating staff. The staff may have either retired or moved to other companies, locations and careers. The decreasing move rate in the health industry creates fewer opportunities each year for the unemployed in the industry.

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Need for increased workforce due to increased population; the data that has been collected by SK&A is silent on the population increase/ decrease in the United States of America in the time in review. However, data from the national Bureau of statistics indicate that there is relevant rise in population since 2008. The table below shows the population growth since 2008 (MLTPL, 2014).

Date US Population
Jul 1, 2013 316.16 million
Jul 1, 2012 313.91 million
Jul 1, 2011 311.59 million
Jul 1, 2010 309.35 million
Jul 1, 2009 306.77 million
Jul 1, 2008 304.09 million

Basing the discussion on the above figures, there should be a similar increment in the number of workers in the health industry both in the government organizations and in private organizations.

Creation of new job opportunities; the other key aspect in the determinant of the demand in an industry is the creation of new job opportunities in the industry. A comparative survey that was conducted by The Advisory Board Company indicated that, the growth rate in the health sector has been on the rise since 2007. In fact, health industry has been providing more workers with new employment opportunities than any other sector in the American economy. The table below shows the comparative survey. However, the number of new jobs in the industry has been fluctuating. This makes this dependant unreliable due to lack of stability.

health care jobs

One of the sectors within the health industry that have been cited to create massive new job opportunities is the leaning institutions. Opening of new research bases creates a new lease of life to the unemployed in the industry. As a student, volunteering in the new developments is an avenue in procuring a job upon completion of the degree.

Research showing current Demand data or most recent past data,

The following table shows the rate of movement in the health industry since 2008,

Year Average move rate
2008 18.2%
2009 15.0%
2010 12.4%
2011 11.3%

Source: SK&A

B. Price Elasticity of Demand facing scenario using the midpoint formula and Demand curve

The elasticity of demand is defined as the aggregate movement of the demand for a certain commodity and the relative movement in its price in the same market (Frank & Ben, 2004). The elasticity of demand for labor is thus measured with the increase/ decrease of the amount of labor demand against the average market prices for labor in the United States of America. The calculation for price elasticity of demand is as below

Price elasticity of demand= % change in the demand for labor / % change in the price for labor in the health industry.

In the year 2012,

Price elasticity of demand= %12/ % 30

= 0.4 or 40 %

This shows that the prices of the labor in the health industry are still elastic regardless of the decline in the movement of workers in the health industry.

C. Graph the Demand facing situation. Below is the graph showing the demand curve in the health industry as at 2011


Supply Determinants

A. Individual determinant analyzed for situation and research showing current Supply data or most recent past data

i. specific Cost of Production Determinant

The supply of labor in the health industry is mainly dependent on the availability of qualified personnel in the field that is employing (Emily, 2011). The cost of production in this case is the aggregate cost that is incurred in the education of such personnel to the various education levels that they have attained. As we shall see latter in the paper, the cost of production differs on the field that the student is in. For example; taking a nursing course is relatively lower than the cost of neurology. It is expected that the higher the student spends in the production of an employee, the greater the remunerations in the work place.

Fixed, Variable, and Marginal Cost

One of the areas that are hard to account for is services. This is because some of the items are given in kind and thus, no price can be tagged on them. However, the following are the differential costs in the production of labor. The cost of tuition is the fixed cost. This is set out by the college/ university that the student attends. Most of the universities review the cost of tuition and other fees at the end of their financial-year (Emily, 2011). The variable costs that are involved in the production of labor in the health industry are the additional costs like; transport, internet usage, boarding facilities and stationery. These costs are mainly dependent on the procurement process, whether they are donations or not, where the student lives among other factors. The marginal costs involved are mainly the costs that are incurred by the student in carrying out projects that are important in the part compression of the study. The determination of marginal costs in the production of labor is dependent on the number of students in an institution. A large student population will spend less individually in completing projects using the same facilities as compared to the individual costs that would be incurred by students in smaller classes (CCEE, 2012). Compilation of national marginal cost of production of labor in health industries would thus require data collection from all health learning institutions.

Supply curve

The supply curve in the health industry is as below;


Explain and show how Profit Maximization or Loss Minimization output and price are determined

In this scenario, loss minimization is more applicable than the policies of profit maximization. Some of the policies for loss minimization would be

  • For the chosen course, ensuring that the students attends the college with the most competitive tuition prices
  • Ensuring that the variable costs noted above are reduced as much as possible. This would include use of bike instead of commuting with car, residing with the family instead of renting an apartment among others
  • For educational institutions, enrolling many students will ensure that the marginal costs of education in the health industry are reduced.
  • The government may reduce losses by subsidizing the cost of tuition

Why you expect Short Run Economic or Normal Profits, Acceptable Loss or temporary shut down and how you will know which it is.

From the analysis of the case, I would expect a short run economic situation. This is mainly due to the multiplicity of factors that are involved in determining the elasticity of demand at any particular time. While the five years under review may sound like eternity to the health students, five years is a short time to determine the future conditions of an industry. As noted previously in the paper, the population of the United States of America is increasing and there is fluctuation in the creation of new job opportunities in the period in review.

The situation is arrived at due to the lack of similarity between the changes that have been evidenced in the movement of health personnel and the changes in the prices for labor.

ii.The Number of Sellers determinant

The term seller in the provision of labor in the health industry is implied (Emily, 2011). This is because; save for the databases that help worker to seek for jobs, labor is sold individually. Even the laws of unionized workers do not allow membership from the unemployed population. However, we can view the sellers in the provision of the health industry as the universalities and colleges that are teaching health disciplines and releasing them to the market. In such assumption, the number of sellers is largely stagnant but the level of production is increasing by the day.

Analysis of the kind of market structure

The market structure in the above case is oligopoly. This is a market structure where there are many sellers but relatively few buyers. The rate of retirement is relatively lower that the rate of graduations forms health institutions. Thus, the number of “sellers of labor” is higher than the buyers whose rate of increase is also relatively slower (Select USA, 2013).

B. Price Elasticity of Supply you have based on the Cost of Production changes using the midpoint formula.

The price elasticity of supply is relatively rigid due to the following factors

  • The annual review of prices of tuitions in health education institutions is minimal
  • The average student’s capacity in health learning institutions seldom change and this leads to a rigid marginal cost. Systems.
  • Whether the costs are incurred physically or in kind, the variable costs must be incurred.


In reference to the principles of economics that were earlier outlined in this paper, Jenny, who is seeking to pursue career in health industry should be keen on which field of health she would want to join. One of the principles of economics is that “every choice has a cost”. Thus, the choice the student makes determine the financial and time costs that shall be incurred by the student/ parent/guardian.

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As noted in the paper, the low movement in the health industry should not be a worry for the student. People movement in an industry is not the only indicator/ determinant of the future of the industry. The factors of population growth and new opportunities indeed create a new lease of life to the students.

While the supply of labor is increasingly rising, it is hard for the price charged by the suppliers of labor to fall. There are tough laws (especially for unionized economies) that place minimum limits, and forbid the buyers of labor from reviewing the reward for labor downwards. It would be a misleading thing to assure any student that getting a buyer for the services is automatic. However, the competitiveness of the American economy provides the students with great potential of creating environments to implement their skills on their own. As noted job creation in the health industry has been growing at a higher rate than the job creation in other industries in the united State of America.

S K & K have given a good analysis on the five years and the movement of people in the health industry. It is notable that the study has been based on 664,600 physicians. Very many categories of workers in the health industry have been left out in this survey. Thus, the report may be ignored by a person who would wish to join a field in health industry that is not considered in data collection and compilations.


CCEE, (2012). Nine economic principles. One goal. California: Author

Emily, B. (2011). Fewer physicians move, a sign of career caution. California: Amed-news retrieved on 17th march, 2014 from http://www.amednews.com/article/20110606/business/306069963/7/

Frank, R.H., & Ben, B. (2004).Principles of Economics. Boston, MA: McGraw-Hill. Print.

MLTPL, (2014). US Population by Year. New Jersey: Author retrieved on 17th March, 2014 from http://www.multpl.com/united-states-population/table

Select USA, (2013). The Health and Medical Technology Industry in the United States. New York: Author retrieved on 17th March, 2014 from http://selectusa.commerce.gov/industry-snapshots/health-and-medical-technology- industry-united-states


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