Become friends with God; He
is already a friend with you.
2 Corinthians 5:20
Closer is He than breathing,
and nearer than hands and
feet – Alfred Lord Tennyson
In trying to make choices,
individuals, government and even
society must consider their Scale of
Preference.
What is Scale of Preference? Group 9
Economics assumes that all humans are rational when
facing essential choices.
Therefore, people usually go for items and services with
maximum satisfaction.
A scale of preference refers to a list of unsatisfied wants
arranged in order of priority or relative importance. This
aids decision-making.
The most pressing needs are ranked first followed by the
less pressing ones.
Illustration: Assume that you have ₦3,500 to spend
on the following items:
Economic Textbook, phone pouch, materials for
simulation lab, Required scrubs for clinicals
If each of the items cost ₦2,500
What will be your preferred scale of preference?
In developing a scale of preference,
i. basic needs are often given priority
ii.Everyone has different preferences.
iii.SOP can be a written or a mental list.
iv.The structure of the scale of preference does
not depend on the monetary cost of the items
but rather on relative importance and
attached incentives .
Explain what you
understand by
patients’ preference.
Group 10
In health economics, patients’ preference can be likened
to individual’s SOP
Patients’ preference identifies the preferred choice when
very different treatment options for same condition
exist. For instance:
➢ Taking a drug daily
➢ Opting for an operation
➢ Receiving injection on weekly basis
➢ Using dietary measures
➢ Using natural remedies
If nurses, physicians, and health care
planners knew more about patients’ health-
related preferences, care would most likely
be cheaper, more effective, and closer to
the individuals’ desires.
Patients should be able to formulate and
express preferences that … meaningfully
inform care activities. (Brennan & Strombom, 1998)
The three Basic Economic Questions
The problem of scarcity which leads
to choice making also leads to the
three basic economic questions.
What are these questions? Group 13
How do these
problems apply to
health care delivery?
Group 14
What Should We Produce?
or
Consumer Goods Capital Goods
How does consumer
goods differ from
producer goods? Group
15
Consumer goods: Goods
purchased for direct consumption
Producer goods: Goods used in the
production of other goods (capital)
How Should We Produce It?
or
Labour Intensive Capital Intensive
How does labour
intensive technique differ
from capital intensive
technique? Group 16
Who Should Get the Products?
or
The Masses The Elites
For whom to produce is about who will receive the
things produced
For instance,
➢The new drug, is it for babies, Under-5 or
everyone?
➢Who makes up the target audience for the malaria
vaccine?
➢Who is the target audience for yellow fever
immunization?
Health economics addresses these
questions primarily from the
perspective of
i. efficiency—maximising the
benefits from available resources
(or ensuring benefits gained
exceed benefits forgone).
ii. equity: Trying to determine what
constitutes a fair distribution of
resources.
Making Choices results in
tradeoff
What is tradeoff? Group 11
A trade-off is the option we
give up, to obtain what we
want.
It is what we give up to get
another thing.
Tradeoffs involves opportunity cost.
What is opportunity cost? Group 12
Opportunity cost is the cost of the
second-best alternative given up to
make a choice.
It is alternative foregone.
It explains the idea that any decision
we make cost us the opportunity to
do something different.
Opportunity Cost:
This is the forgone
benefit that
would have been
derived from the
next best option
not chosen.
If we had to choose to invest more in the following
projects in Nigeria based on their order of importance:
Training of artists
Training of economists
Training of health professionals
Training of engineers
What is the opportunity cost of investing in the training
of artists?
Recall we said the goal to make choices that reduce
the problem of scarcity as much as possible.
Another way to say this is that we want to get the
maximum satisfaction possible out of our limited
resources.
We don't want to make just any choice; we want to
make the BEST choice.
Three options available to help society deal
with scarcity :
i. economic growth
ii.reduce our wants, and
iii.use our existing resources wisely (Don't
waste the few resources that we do have.)
Opportunity
Cost
(Tradeoffs)
Reduce
wants
a. Economic growth: An increase in the
production of goods and services in an
economy compared from one period to
another
The process by which a nation’s wealth
increases over time
An increase in the capacity or ability of
an economy to produce goods and
services compared from one period to
Economic growth can be caused by:
a) more resources
b) better resources
c) better technology
If society had more and better resources, society will be able to
produce more goods and services and satisfy more of our wants.
This will reduce scarcity and give us more satisfaction (more goods
and services).
Since economic growth is desirable, all societies try to achieve
economic growth.
If society can train more health professionals,
then the economy is growing.
If society produces more of a certain kind of
drugs, then the economy is growing.
If society can perform more heart transplants
and other surgeries, then the economy is
growing.
b. Reducing Wants
Another way for a society to handle scarcity is to reduce its wants. If
we just didn't want so much then there would be less scarcity.
Medical professionals are very scarce. Imagine that Buhari enacts a
law to help reduce the scarcity of nurses by enacting a law that says
ALL NONCOMMUNICABLE DISEASES SHOULD BE TREATED AT HOME.
How will this help resolve scarcity of nurses for instance?
The demand for nurses will reduce and so will the scarcity of nurses
and other health professionals needed to treat people with NCD.
The option of reducing wants
may not be a very good option,
and it is not a long-term
solution to the problem of
scarcity that most of us would
accept.
3. Using Existing Resources Wisely
There are four ways that societies can use their
existing resources to reduce scarcity and obtain
the maximum satisfaction possible:
i. Productive Efficiency
ii.Allocative Efficiency
iii.Full Employment
iv.Equity
Opportunity
Cost
(Tradeoffs)
1. PRODUCTIVE EFFICIENCY
Productive efficiency can be defined as incurring
the least or minimum cost of production during the
production process.
When production is at minimum cost, society is
using fewer resources but with more output. As
output increases, scarcity is reduced and society
enjoys maximum satisfaction from existing
resources.
To achieve minimum cost of Production or
productive efficiency:
a.Society must not use more resources than
necessary
b.Resources must be used where they are best
suited
c.Society must use the best and appropriate
technology
2. Allocative efficiency is using our
limited resources to produce:
a. The right mix of goods
b. More of what people want
c. Less of what people don't want
Allocative inefficiency occurs
when we use our limited
resources to produce too
much or too little.
This results in surpluses and
shortages.
3. Equity
This is a "fair" distribution of
income, or goods and services.
How do we define “fair”?
Is equity equality?
Would an equal distribution of income be
good for society?
Would it be good if nurses were paid the same
as janitors? Probably not.
What would be the problem if nurses and
janitors were paid the same wages?
We would have few doctors, and the would
not put in the time needed to learn medicine.
Equity describes society’s ability to
distribute income, goods and
services in a way that total utility
and satisfaction for everyone
increases.
a. More should be given to those
who have the least
b. Those who have used more
resources to produce goods and
services should also be rewarded
more
4. Full employment
Using ALL available
resources, not just labor
