Explain the model of derived demand in figure 8.1. In what sense is demand derived? How does a healthcare system determine Qm, the minimum health requirement? How does a healthcare system determine Qc1, the clinical quantity of care? To answer these questions, think about the provision of healthcare in terms of costs and benefits.

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The Answer is The demand for healthcare is derived from an individual's demand for health. It is inversely related to price. The demand for healthcare is defined in terms of what an individual is willing to sacrifice to obtain better health outcomes. Following the analysis of Henderson (2018), figure 8.1 depicts the demand for healthcare (D1), where Qm equals the minimum level of healthcare necessary to maintain a person's health status. An assumption is that society will not allow anyone's health fall below (Qm). In the model, the healthcare community guarantees a clinical quantity of care for each patient (Dc1) without consideration of cost. Policymakers and administrators use Dc1 to determine resource needs, including personnel, equipment, and facilities. Because the clinical quantity of care does not consider cost, Dc1 is perfectly inelastic: individuals demand a level of care (Qc1) regardless of price.

Explain the Model of Derived Demand in Figure 8