Why Health Policy Makers Need Economics 101
September 26, 2020
News Article
Here are a few statements you have heard about or read about in the news. Each of the statements is true. But they encourage you to come to a conclusion that is false.
There is no evidence of widespread voter fraud.
The protests are mostly peaceful.
Studies find jobless benefits are usually not a disincentive to work.
People with high deductibles don’t act like savvy shoppers.
The problem with each of these statements is that they encourage the reader to focus on what people are doing on the average. We should focus instead on what is happening at the margin.
One of the first things students learn in economics class is that what the average person is thinking or doing has almost no effect on anything. For example, the price the average consumer is willing to pay for a good is largely irrelevant. What the average seller is willing to sell for is also irrelevant. The only people who really matter are the marginal buyer and the marginal seller.
How many of us are savvy shoppers for bread? Can you tell me what the price of a loaf is at the supermarkets near you? I certainly can’t. To reap the benefits of a competitive market, I have to rely on customers with time on their hands – who save newspaper coupons and share shopping tips with each other. Supermarket pricing is very competitive because of a small number of marginal shoppers. The rest of us get a free ride.
