ABSTRACT
Economics has become less of an esoteric science and more of a practical application of knowledge. The predictions of economists have not been well borne out and there are wide fields of disagreement, but the basic principles can be useful in examining the trends in health care costs. Models are designed for several reasons. They simplify decision making by presenting data in essential form and they eliminate the poor choices and the unnecessary data. Lester Thurow has pointed out that we live in a “zero sum” game. There is a finite amount of money in the system determined by appropriations and insurance premiums. The law of supply and demand is a basic principle of microeconomics. Models should be designed to lay out alternatives and expected outcomes and they should provide the methods for choosing a best decision. Other applications can be solved by the difference equations. Another application of model making is the queue theory.
