Solve this problem, and you can solve the healthcare problem

Americans love apples. And fortunately, there are plenty of apples to go around. But what if there weren’t?

Let’s assume the average American eats an apple a day (it is actually nowhere near that, but let’s keep it simple). Then let’s say American apple growers produce exactly that amount. Supply equals demand, equilibrium pricing, everybody is happy.

Now let’s complicate things.

First, let’s assume as people get older, they need to eat more apples. So there is greater demand for apples. Unfortunately, apple growers cannot physically produce more apples than they do now. Anybody that has taken high school economics can tell you that if supply stays flat and demand increases, prices must go up.

While apple growers cannot increase the number of apples they produce, they can improve the quality of apples, which makes people healthier and enables them to live longer. That increases the demand even more, causing prices to go even higher.

So what do we do in this state of disequilibrium, now that the price of apples has risen so much that many people cannot afford it? Well, you could try to do a few things.

First, you could focus on demand and tell people they can’t have all the apples they want. But people think eating apples is a right, and you should not ration apples.

So, second, let’s focus on supply. You could try to increase supply by getting more people to grow apples. But people don’t want to become apple growers, because there are big barriers to entry like education and insurance. Then once you become an apple producer, the cost of the supplies needed to grow apples, the cost of paying people to work in orchards, and shipping costs keep going up. Plus, because they are afraid of getting sued, apple growers are doing things they really do not think they need to do to ensure the quality of apples, but do just to avoid lawsuits.

Third, you could raise prices, but subsidize the cost of apples for people. People would pay middlemen money so that they could get apples whenever they wanted. The amount of money people would pay would depend on how many apples they wanted, and what kind of apples. These middlemen would then pay the apple growers.

Unfortunately, the apple growers still have to pay for labor, supplies, insurance and shipping. Those prices keep going up, so they have to raise prices to the middlemen. The middlemen also have their own business to run and salaries (some say exorbitant) to pay. So the middlemen raise prices to consumers. Soon it would get to the point that people could not even afford to pay the middlemen, so they could not get apples.

At the same time, these middlemen now have huge buying power, so they can actually force the apple growers to provide the apples at sharply discounted prices. So the apple growers are faced with increasing costs, barriers to entry, and now reduced revenues. Clearly, no motivation for people to become apple growers, even though there is clearly a demand for more apples.

That is the core of this hypothetical apple problem (sorry about that). What is your solution? If you can figure this out, congratulations, because you have also solved the healthcare problem.