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Food for thought

norcaltransplant

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Posted from a friend's message board (SDN):

"So I'm taking an econ class right now about the U.S. healthcare system, and my professor said something the other day which I've decided doesn't sit well with me at all. We were discussing the differences between the classical market model and the healthcare market, and she claimed that it is only in healthcare that the seller can create a demand for something that previously did not exist. Apparently, in a classical market things are only sold when there is a demand for them.

Now, I've said before that my understanding of economics is weak, but this seems utterly counterintuitive. It seems to me that part and parcel of the capitalist economy and the entrepreneurial spirit is creating niches and selling things to people that they never thought they needed. Isn't this what advertising is all about, anyway?

Here are some examples of non-healthcare products which I think are precisely a result of induced demand:

video games
life insurance
amazon.com (and the phenomenon of the online superstore)

Anyway, I'd be interested to here people's thoughts on the notion of induced demand in the marketplace. Does it exist or doesn't it?
 

Brian SD

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That's an interesting topic, and I do think that induced demand exists, but is not limited to the medical field (and my knowledge of said field is even more limited, so I won't attempt to dent it greatly here). Acid reflux disease, or whatever you call that thing, is more a niche marketing fundraiser than it is a disease, from what I've heard and been told (mostly by a high-school AP Biology teacher). Heartburn used to be a simple, minor misfortune that occurred after eating vandalic food. Now you can be sure that you don't have a weak stomach, or you don't eat the wrong foods too often, you have acid reflux disease. Ouch, sucks to be you, dear. It's true that some people get heartburn consistently, while others do not; however, the same applies to hangovers after a long night of drinking. Should we adopt a new disease called "Party Regret Syndrome?" I think I'm going to end up in a circle in just a moment, because I realize that even in the case that the disease is bogus (which it may or may not be, I have no idea), the fact remains that some people get heartburn more than they'd like, and thus their search for an answer or cure creates market demand. I'm sure a couple years ago, no one thought you could enlarge your penis by taking pills, but the issue is out there that some guys are not satisfied with their miniscule manpower, and thus a new medical marketing niche is born. Does this make sense? Probably not, but it sure is killing time nicely.
 

faustian bargain

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maybe the professor was talking about 'need', not just 'demand'. even so it's a difficult assertion to prove. 'need' is so hard to define. on the one hand, for basic survival need, humans (or their progenitors) got along fine for thousands of years using little more than their wits. on the other hand, using 'optimum human experience' (ie long healthy life, happiness, fulfillment, etc.) as the determining criterion for 'need', you end up with things like progress, technology, convenience, refinement, etc. being very important, and the 'need' for various goods and services proliferates across the board.

in addition, it's hard to compare the healthcare market with a classical market model without paying attention to the level of government involvement in the industry. very difficult to pick out the supply and demand factors, at least to my untrained eye.

/andrew - not an econ major, but i play one on tv
 

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