1. Health Economics
M.MHLANGA 1

2. Lecture 1: Economics, Health and Health Economics
What is economics?
What isn’t economics?
What is “Health”?
What is “Health Economics”?
Key Economic Concepts
Opportunity cost
Efficiency 93

3. Economics is about … Limited resources Unlimited “wants”
Choosing between which ‘wants’ we can ‘afford’ given our resource ‘budget’ 93

4. Economics is about choice
Good ‘A’
Good ‘B’
Budget 93

5. Concept 1: opportunity cost
“The value of forgone benefit which could be obtained from a resource in its next-best alternative use.” 93

6. Example of opportunity cost
Possible Health Expenditure in a Year 93

7. Implications of opportunity cost
Deciding to do A implies deciding not to do B (i.e. value of benefits from A>B).
Cost can be incurred without financial expenditure.
Value not necessarily determined by “the market”. 93

8. Economists view of the world...
Pessimist: bottle ½ empty
Optimist: bottle ½ full
Economist: bottle ½ wasted
inefficient! 93

9. Concept 2: efficiency
Efficiency = maximising benefit for resources used
Technical = meeting a given objective Efficiency at least cost (resources)
Allocative = producing the pattern of Efficiency output (supply) that matches the pattern of consumer want (demand) 93

10. Efficiency and ‘the market’
Price/ Cost
Supply
The marginal private cost (MPC) of producing a good is the increase in total private cost from producing an additional unit.
The marginal private cost curve is the industry supply curve under perfect competition.
Demand
Quantity 14

11. Efficiency and ‘the market’
Price/
Cost
Supply A
Equilibrium
Price PA
Demand QA
Quantity 15

12. Topic versus discipline
Health economics is the discipline of economics applied to the topic of health. 93

13. Some misconceptions Economics is … concerned with money
the same as accountancy
only practised by economists
objective 93

14. Economics and money Economics is concerned with… Money is…
costs (resource use)
benefits
choice
efficiency
Money is…
store of value
means of exchange 93

15. Economics and accountancy
Economics is concerned with…
costs (resource use)
benefits
choice
efficiency
Accountancy is concerned with…
monitoring financial transactions 93

16. The ‘practice’ of economics
Economics is concerned with…
costs (resource use)
benefits
choice
efficiency
Everyone…
weighs the relative benefits of each course of action and choose the action which maximises well-being 93

17. Economics and objectivity
All decisions are based on subjective value judgements (or judgements of subjective value!)
Economics makes these explicit 93

18. What is ‘health’? World Health Organisation:
Health is a “state of complete physical, mental and social well-being”
“Health Economics” is often “Health Care” Economics
Usually “health” in health economic (evaluation) is health status according to some measure 93

19. Applying economics to health (care)
Descriptive = quantification
Predictive = identify impact of change
Evaluative = relative preference over situations 93

20. Health economics ‘map’
H. Micro-Economic Appraisal
E. Market Analysis
B. What influences
Health? (other than
health care)
A. What is Health? What is it’s value?
C. Demand for
Health Care
D. Supply of
Health Care
G. Planning, budgeting,
regulation mechanisms
F. Macro-Economic Appraisal 93

21. A: Value of health 91

22. Health economics ‘map’
H. Micro-Economic Appraisal
E. Market Analysis
B. What influences
Health? (other than
health care)
A. What is Health? What is it’s value?
C. Demand for
Health Care
D. Supply of
Health Care
G. Planning, budgeting,
regulation mechanisms
F. Macro-Economic Appraisal 93

23. B: Demand for health (Grossman)91

24. Health economics ‘map’
H. Micro-Economic Appraisal
E. Market Analysis
B. What influences
Health? (other than
health care)
A. What is Health? What is it’s value?
C. Demand for
Health Care
D. Supply of
Health Care
G. Planning, budgeting,
regulation mechanisms
F. Macro-Economic Appraisal 93

25. C/D/E: Supplier-induced demand
Price/
Cost S D2 D1
Quantity 15

26. Health economics ‘map’
H. Micro-Economic Appraisal
E. Market Analysis
B. What influences
Health? (other than
health care)
A. What is Health? What is it’s value?
C. Demand for
Health Care
D. Supply of
Health Care
G. Planning, budgeting,
regulation mechanisms
F. Macro-Economic Appraisal 93