Demand and supply is very important in creating relationship between the seller and the consumer, because it deals

with delivery of goods and services that are necessary in peoples life. Demand is the desire to own anything, ability to pay for it and the willingness to buy particular commodity at a given point of time. The law of demand is explained by a straight line because, all factors remain equal, therefore, the higher the price of health goods and services, the less people will demand for them.

The demand relationship curve illustrates the negative relationship between price and quantity demanded. The higher the price of a good the lower the quantity demanded (A), and the lower the price, the more the good will be in demand (C). Supply refers to the amount of a certain good producers are willing to supply at a certain period of time. The law of supply states that the higher the price, the higher the quantity supplied and the lower the price, the lower the quantity demanded.

Equilibrium When supply and demand are equal, the economy is said to be at equilibrium. At this point, the allocation of goods is at its most efficient because the amount of goods being supplied is exactly the same as the amount of goods being demanded as shown in the two curves in the diagram below.(nihfw.org/pdf/Basic%20Health%Economic%2009) and (E.Getzen, 2007) Applications of demand and supply in health sector The applicability of demand and supply for health care services is presented in the establishment of hospitals and health centers .The hospitals and health centers serve the population under their area of operation, here, they supply technical health services and health products to the people. If the payment of hospitalization fee is high such as physician fee, medical fee, hospital room fee, drugs and medicine expenses, it will lead to a low demand, thus, the consumers will look for alternatives, like traditional healers and the supply of services by the hospital will reduces. Further more, when more individuals buy paracetamol, anti-biotic drugs, and other pain relieving medicine in pharmaceutical or drug stores, the demand will increase, which will force the price to be rose, therefore, will leads to the increase in supply at these market places. In addition to the above, when an individual is willing to buy medicine as prescribed by the doctor such as a case of life threatening illness like typhoid fever, influenza, pneumonia and other related diseases, the supply for the drugs increases, and this could lead to increase in price because there is more demand for the drugs. Since patients will know that the only way to save their lives is by buying and following the doctors advice. (en.wikipedia /wiki/health)

As if that is not enough, the high income patient has the tendency to be confined in the more expensive hospital. The private hospitals have high fees in the use of hospital private room, physician fees, laboratory fees, medicine expenses and other hospital fees. The demand for confinement will reduce especially for the low income patients who cannot afford, but if the hospital is in the area where peoples income is high then demand will increase, as a result leading to the increase of the price, hence, need for more supply to create economic equilibrium which will lead to improved service delivery. The poor patients prefer to be confined in district government hospitals because it is less expensive than private hospital. This increases demand for services in the government hospitals and supply of services also increases, because people are sure of getting services since the services are provided for free, what public has to do is to demand for the services, which will be supplied to them at no cost. However, some public hospital have private wing which offer subsidized prices. In conclusion, demand and supply are good indicators of health service delivery, because when they are in equilibrium, it shows improved health service delivery in the health facility. However, they do not account for the people who neither go to private nor to the public facilities. Marginal cost is any additional cost for an additional unit of out put Average cost is total cost unit per unit of out put Direct cost is the money paid after gaining service eg ambulance, Recurrent cost: daily running cost. Salary, food Capital cost-long term investments eg infrastructure like land, building

Economic cost is the sacrifice involved in performing an activity, or following a decision or course of action. It may be expressed as the total of opportunity cost (cost of employing resources in one activity than the other) and accounting costs (the cash out lays).

Moral hazard A moral hazard is a situation where a party will have a tendency to take risks because the costs that could incur will not be felt by the party taking the risk. A moral hazard may occur where the actions of one party may change to the detriment of another after a transaction has taken place. For example, persons with insurance against automobile theft may be less cautious about locking their car, because the negative consequences of vehicle theft are now (partially) the responsibility of the insurance company.

The risk that a party to a transaction has not entered into the contract in good faith, has provided misleading information about its assets, liabilities or credit capacity, or has an incentive to take unusual risks in a desperate attempt to earn a profit before the contract settles. Moral hazard can be present any time two parties come into agreement with one another. Each party in a contract may have the opportunity to gain from acting contrary to the principles laid out by the agreement. For example, when a salesperson is paid a flat salary with no commissions for his or her sales, there is a danger that the salesperson may not try very hard to sell the business owner's goods because the wage stays the same regardless of how much or how little the owner benefits from the salesperson's work.