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demanded and the total expenditures on higher education. In markets with
third-party payers, an equilibrium is achieved, but it is not at the
intersection of the demand and supply curves. The effect of third-party
payers is to decrease the price that consumers directly pay for the goods
and services they consume and to increase the price that suppliers receive.
Consumers use more than they would in the absence of third-party payers,
and providers are encouraged to supply more than they otherwise would.
The result is increased total spending.

KEY TAKEAWAYS


The rising share of the output of the United States devoted to health
care represents a rising opportunity cost. More spending on health
care means less spending on other goods and services, compared to
what would have transpired had health-care spending not risen so
much.



The model of demand and supply can be used to show the effect of
third-party payers on total spending. With third-party payers (for
example, health insurers), the quantity of services consumed rises, as
does spending.

TRY IT!
The provision of university education through taxpayer-supported
state universities is another example of a market with a third-party
payer. Use the model of demand and supply to discuss the impact this
has on the higher education market. Specifically, draw a graph similar
to Figure 4.16 "Total Spending for Physician Office Visits Covered by

Insurance". How would you label the axes? Show the equilibrium price
and quantity in the absence of a third-party payer and indicate total
spending on education. Now show the impact of lower tuition As a
result of state support for education. How much education do
Attributed to Libby Rittenberg and Timothy Tregarthen
Saylor URL: />
Saylor.org

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