• Virginia de Bond

Marginal Utility & Diminishing Marginal Utility in Healthcare

The two primary uses of medical funds are physician services and hospital services. Utility analysis is to understand why people demand health. Excellent medical care exhibits; inseparability, intangibility, inconsistency, and inventory (Health Economics Homework Questions - What are two major uses of medical funds The two primary uses of medical funds are hospital services, n.d.). People with good health receive satisfaction by being able to achieve life goals. Poor health consumes a persons time, energy, and money. Good health allows better living standards.

Health creates satisfaction to consumers by desired consumption and generates utility by peoples demand health. The desired quality life of an individual gives an overall improvement to health and receipt of utility. A healthy person does not need to allocate time for sickness, hence use more healthy days to pursue other activities, to work and increase income. (Health Economics Homework Questions - What are the two primary uses of medical funds. The two primary uses of medical funds are hospital services, n.d.). The law of diminishing the marginal utility indicates that each incremental improvement to health generates minute additions to the total efficiency.

Most of the time, people have the conception that economic theory has less to do with health as urgent medical attention are not directly tied to economic theory. Other than a time, when a person has to rush to the hospital with a heart attack or similar nature of a life-threatening emergency, generally people have time to decide to determine their medical choices. According to a survey, the price was considered as the most critical factor when determining the economic success of health care providers. (The Demand for Medical Care. Factors that Determine the Demand for Health Care, n.d.). Medical care helps in restoring, maintaining and improving health. The marginal improvement to health brings each additional unit of medical care consumed to decrease which is the concept of the law of diminishing marginal productivity. Medical care helps to produce health.

The marginal utility of a service or product declines as the supply increases. When a person receives a product with economic value, the person values the use of that product. The first product obtained is the most valued unit by the person. When the person receives the product for the 2nd time, the person’s value for the product may be less than the first time. This scenario shows that when a person buys products over some time, the person does not give equal importance to the product. Sometime, a person may pay more for a product and less for some other product.

A further example of a man who finds a case of bottled water in a deserted island washed to the ashore could be explained as the first bottle may satisfy his thirst is the most important use of the bottled water. He could use the balance bottles of water to bathe himself or save for later. The value of future water for drinking brings more value than bathing with them today, but the bottle of water that fulfilled his thirst has more value than the water he saved for future use. This concept is identified as ordinal time preference which explains savings and investing versus current consumption and spending (Ross, 2019).

Each additional improvement in health generates a smaller increase in utility because of the law of diminishing marginal utility (The Demand for Medical Care. Factors that Determine the Demand for Health Care, n.d.).

Health Economics Homework Questions - What are two major uses of medical funds. The two

major uses of medical funds are hospital services(31 percent and. (n.d.). Retrieved from https://www.coursehero.com/file/11685894/Health-Economics-Homework-Questions/

Ross, S. (2019, March 12). What Does the Law of Diminishing Marginal Utility Explain? Retrieved from


The Demand for Medical Care. Factors that Determine the Demand for Health Care. (n.d.).

Retrieved from http://intranet.tdmu.edu.ua/data/kafedra/internal/magistr/classes_stud/English/First%20year/Health%20Economics%20and%20marketing%20of%20medical%20services/05.%20The%20Demand%20for%20Medical%20Care.%20Factors%20that%20Determine%20the%20Demand%20for%20Health%20Care.htm


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