The Geography of Supply and Demand - Pacific Standard

The Geography of Supply and Demand

Where supply and demand comes from matters.
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The Mayo Clinic's Gonda building as seen from the cafeteria. (Photo: Nephron/Wikimedia Commons)

The Mayo Clinic's Gonda building as seen from the cafeteria. (Photo: Nephron/Wikimedia Commons)

All hail the libertarian fetish. Whatever the problem, the market will solve it. Such ideology ignores the social science model. The graph of supply and demand abstracts human behavior. We can predictably price human wants and needs. That same model of supply and demand applies to migration. We expect the supply of movers to reach equilibrium with the demand for movers. Labor votes with its feet.

For the sake of this post, I will run with the libertarian ideology. The quality of demand for baseball and health care:

Like casual baseball fans, most health experts get cause and effect backward. They believe these absurdly high prices are what explain the U.S.’s high health-care tab. But it's the other way around. America’s unique willingness to pay more for health care -- the continuous raising of our demand curve -- forces up prices.

"America's unique willingness to pay for more health care" distorts the supply and demand curve, geographically speaking. Given limited supply of health care service, the money continues to flood in despite the rising costs. Cost fails to discipline demand.

For health care, where does cost fail to discipline demand? Rochester, Minnesota:

A key challenge facing Mayo in the era of cost-containment is its premium pricing structure. Critics allege the clinic is using its dominant presence and reputation to set artificially high prices, sometimes several times the rates charged by other hospitals for similar procedures.

Mayo contends that its treatments are more comprehensive — thereby reducing readmissions and future procedures — and that its patients are generally sicker with more complex needs. It also has the burden of cross-subsidising the research and development arms of its medical centre.

“Are they charging more for quality or are they charging more for a brand name?” says Tim Jost, a law professor at Washington and Lee University and expert on health insurance markets. “I don’t know how you could ever quantify the additional value that the Mayo Clinic offers. It’s the fundamental problem in healthcare, which is that we don’t really have markets.”

Fact of the matter, Mayo can charge more for most procedures than other hospitals in the United States. As any libertarian would point out, other supply of health care services would undercut the higher prices. However, such an assertion would fail to account for the geography of supply and demand.

Health care cost fails to discipline demand because wealthy Chinese clients will fly to Minnesota in order to receive care. Health care provision is usually understood as local, non-tradable. Sometimes (somewhere), health care is tradable. A few places can cash in. Most places cannot.

Jim Russell, a geographer studying the relationship between migration and economic development, writes regularly for Pacific Standard.

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