Health Economics II
BY: MS. ESTER JOHANNES
Introduction to health economics
cont…
Scarcity in Health:
Scarcity is a fundamental concept in health economics that underscores the limited
availability of resources, such as healthcare facilities, medical personnel, and financial
resources, relative to the unlimited demand for healthcare services. Understanding
scarcity in the context of health is essential for policymakers, healthcare providers, and
individuals alike.
1. Limited Resources: Healthcare systems face constraints due to limited resources,
including funding, medical supplies, and trained personnel. These limitations create
challenges in meeting the diverse healthcare needs of populations.
2. Allocation Decisions: Scarcity necessitates making choices about how to allocate limited
resources efficiently. Healthcare policymakers must prioritize interventions, allocate
funding, and design healthcare delivery systems to maximize health outcomes within
resource constraints.
3. Opportunity Cost: Every decision in healthcare involves opportunity costs, whereby
choosing one course of action means forgoing alternative options. Understanding
opportunity costs helps decision-makers assess trade-offs and make informed choices that
maximize health benefits.
4. Equitable Distribution: Scarcity often exacerbates disparities in access to healthcare
services, with marginalized populations facing greater barriers to care. Efforts to address
scarcity should prioritize equitable distribution of resources to ensure fair access to
healthcare for all.
5. Innovation and Efficiency: Scarcity drives innovation and efficiency in healthcare delivery
and resource management. Healthcare systems must continuously seek ways to optimize
resource utilization, adopt cost-effective interventions, and innovate to meet evolving
healthcare needs.
6. Public Health Priorities: Scarcity underscores the importance of setting
clear public health priorities and focusing resources on interventions that
offer the greatest health benefits to the population. Evidence-based decision-
making and priority setting are crucial for maximizing the impact of limited
resources.
7. Global Health Challenges: Scarcity is particularly acute in low- and middle-
income countries, where healthcare resources are often scarce, and health
needs are high. Addressing global health challenges requires coordinated
efforts to mobilize resources effectively and strengthen healthcare systems.
Health Economics as a Branch of
Economics:
Health economics applies economic principles to analyze healthcare
systems, healthcare services, and health outcomes.
It utilizes economic tools to understand how resources are allocated in
the healthcare sector, considering factors such as scarcity, choice, and
opportunity cost.
Key concepts from general economics, such as supply and demand,
cost-benefit analysis, and efficiency, are adapted to address healthcare-
specific issues.
Why is Health Economics So
Important?
It helps policymakers, healthcare providers, and individuals make
informed decisions about resource allocation in healthcare.
Health economics provides insights into the efficiency and effectiveness
of healthcare interventions, informing decisions on healthcare spending
and investment.
Understanding health economics is crucial for achieving equitable
access to healthcare services and improving health outcomes for
populations.
Scope of Health Economics:
Health economics encompasses various topics, including healthcare
financing, healthcare delivery, health insurance, healthcare markets,
and healthcare policy.
It involves studying the behavior of individuals, healthcare providers,
insurers, and government entities within the healthcare system.
The scope extends to analyzing the impact of healthcare interventions,
public health programs, and health policies on population health and
healthcare costs.
Crux of Having Health as a
Separate Discipline:
Health economics recognizes the unique characteristics of healthcare
markets, such as information asymmetry, moral hazard, and the
presence of externalities.
By treating health as a separate discipline within economics, it
acknowledges the distinct features and complexities of the healthcare
sector.
This specialization allows for tailored economic analyses and policy
recommendations that address the specific challenges and
opportunities in healthcare provision and financing.
Health Economics and
Development:
In developing countries, health economics plays a vital role in
addressing health disparities, promoting economic growth, and
achieving sustainable development goals.
It informs strategies for healthcare resource allocation,
prioritizing interventions that maximize health gains with limited
resources.
Health economics contributes to designing and evaluating
healthcare financing mechanisms, health insurance schemes,
and public health programs tailored to the needs of developing
economies.
Activity: Identifying Opportunity Cost
Scenario 1:
You have $10 to spend at the school
fair. You can either buy a ticket for the
Ferris wheel for $5 or buy three ice
cream cones for $3 each. What is the
opportunity cost of buying the ice cream
cones?
Scenario 2:
Youhave an hour of free time after
school. You can either spend it playing
video games or studying for your
upcoming test. What is the opportunity
cost of choosing to play video games?
Scenario 3:
Youhave a part-time job offer that pays
$10 per hour. You can work either on
Saturday mornings or Sunday
afternoons. However, you also have
soccer practice on Saturday mornings.
What is the opportunity cost of choosing
to work on Saturdays?
Scenario 4:
You'redeciding whether to go to a
movie theater or watch a movie at
home on Netflix. The movie theater
ticket costs $15, and you already have a
Netflix subscription, which costs $10 per
month. What is the opportunity cost of
going to the movie theater?
Scenario 5:
You'reconsidering going to a concert
with your friends on Friday night. The
ticket price is $40, and you have a
tutoring session that you can attend
instead, which pays $30. What is the
opportunity cost of going to the
concert?
Managerial economics
• Resources- Highest output
• Objectives- Minimum Resources
• Objectives and resources-Highest utility
• Utility- capacity to satisfy human need.
• Tools to aid decision making
– Cost analysis
– Production analysis
– Utility Analysis
COSTS
Opportunity Cost Sunk Costs
Incremental costs Life cycle costs
Marginal Costs Variable Costs
00000000000Direct costs fixed Cost
Indirect costs
