South-Western College Publishing - Economics  
In Britain, everyone wants to be a doctor. Really.
Subject Doctors' salaries in Britain are increasing sharply due to recent government moves to encourage more people entering medical school.
Topic Supply and demand
Key Words

salary, general practitioner, demand, supply, medical school, government

News Story

Salaries for British general practitioners have increased to around 90,000, or about U.S. $170,000. This represents a 50% increase over the 2002-03 average salary of 61,000. Why? Thank the British government.

General practitioners (GPs) usually earn far less than do specialists in private practice. This salary differential makes it difficult to recruit people to become GPs, especially in poorer areas of the country. Consequently, a significant shortage of such doctors has arisen. The Royal College of General Practitioners estimates that the shortfall will reach about 20% by 2008.

As a result, the British government instituted an incentive system designed to help GPs maintain a higher living standard. By offering them contracts based on the numbers of services provided or numbers of appointments kept, GPs can increase their salaries as much as they wish.

These inducements have had repercussions, however. Now it seems that everyone in Britain wants to be a GP. Medical school acceptance rates in percentage terms have fallen to about 12% of applicants. To eliminate the anticipated shortfall, new medical schools are being built around Britain.

Questions
1.

Indicate with a graph of supply and demand what is happening in the market for medical school education. Show on the graph where the excess demand appears in medical schools. What would you speculate would happen in terms of applicant quality or credentials?

2. What is happening to eliminate the excess demand for medical school admissions? Why isn't the market adjusting immediately to the disequilibrium?
3. Why is the government intervening in this market? Explain carefully, describing the opportunity costs involved in such a decision. As an additional consideration, what externalities in terms of health care would you expect to arise as a result of the government intervention?
Source "Practice Makes Perfect." The Economist, 12 May 2005.

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