King Rat (gkr) wrote,
King Rat

Eco 200: physicians

(individual) Physicians who have borrowed extensively to finance their medical educations often enter practice with large debts that they must begin repaying.

  1. What differences would you expect to observe in the fees set by three young physicians just setting up practice if one financed his education by borrowing and must now make payments of $9600 per yer for 15 years, another had her entire education paid for by her parents, and the third when all the way through on government-provided scholarships and grants?

    I'd expect no difference at all, all other things being equal. The means of funding the education is a sunk cost by the point in time referred to in the question.

  2. Evaluate the argument, put forward by the business manager of a medical school, that the government could lower our doctor bills by paying for the entire education of physicians, thus making it unnecessary for physicians to recover the costs of their education (plus interest) by raising their fees?

    The argument has some merit, though not for the reason specified. At the point a prospective physician enters medical school, he will be evaluating total future revenue vs. total future cost. At that point the funding of school is not sunk. Tuition free schooling reduces the cost portion. So more physicians will enter the market and prices will eventually drop. However, the argument that they are recovering their fees is specious. At the point a physician sets fees, education is a sunk cost.

  3. The author of the above argument asserted that you and I will have to cover the cost of the doctors' loan repayments in our fees because these payments are a legitimate cost of doing business. Wht difference does it make whether particular payments are or are not a legitimate cost of doing business? Suppose all physicians practicing in an area had to pay $5000 a year to the local crime syndicate as protection money. Would these payments be a legitimate cost of doing business? Would they affect doctor's fees?

    They would affect doctor's fees only in that when costs rise above revenues, the doctor's will find other opportunities (relocation or other occupations). And so the supply of physicians will dwindle and prices will rise. All the costs are legitimate in that respect.

Tags: school

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