The following hypothetical example is the first in an occasional series of essays arguing for the need to repeal and replace ObamaCare.
At equilibrium, the quantity supplied is equal to the quantity demanded, 5 units of medical insurance, with a corresponding price of 50 units of money (Figure 1).
With ObamaCare’s individual mandate, demanding that every American purchase medical insurance, the demand curve shifts rightward to reflect the increase in quantity demanded, and supply meets demand at a new equilibrium price, 70 units of money, corresponding to an increase in costs for factors of production (Figure 2).
But with ObamaCare also preventing medical insurance companies from adjusting the price to pay for increased costs at the new equilibrium, imposing a price control at 50 units of money, the quantity that medical insurance companies are able to supply at the old price remains at 5 units, while 9 units of medical insurance would be demanded at the artificially low price (Figure 3).
ObamaCare illustrates how bad economic policy can result in a shortage of medical care and government rationing, as observed under communism.
N. Gregory Mankiw, Principles of Economics, Fifth Edition (Mason: Cernage Learning, 2009).
Graham Bannock, Ron Baxter, and Evan Davis, The Economist Dictionary of Economics, Fourth Edition (Princeton: Bloomberg Press, 2003).
Joseph White, “Budgeting for Entitlements,” in Handbook of Government Budgeting, ed. Roy T. Meyers (San Francisco: Jossey-Bass, 1999).