Discussion:
1. There are two contrasting theories of physician behavior. The first is the traditional model and the second is referred to as "physician-induced demand" or "target income."
a. Explain each model and describe how each of these models differ in their assumptions regarding physician behavior and patient information.
b. What would be the consequences of an increase in the supply of physicians on the price of physician services, the quantity of physician visits, and total physician expenditures of each of these theories?
2. What are some of the ways in which health insurers seek to compensate for the information advantage physicians have?
3. Large variations in physician fees exist for the same type of service within the same market area. Provide two alternative explanations for this variation; one based on a competitive market model and the other using a monopoly framework.
4. Outline the structure of the physician services market. What features of this market differ from the purely competitive model? What changes, if any, would you suggest to change the performance of this industry?