HEALTH ECONOMICS

What is economics?

“The study of how men and society end up

CHOOSING, to employ SCARCE productive
RESOURCES that could have ALTERNATIVE uses,
to produce various commodities and DISTRIBUTE
them for consumption,now or in the future,
among various people and groups in society.”
 What is economics?

• Economics is about allocating scarce resources

• Three fundamental elements:
– scarcity: needs, wants and demands are greater
than resources available to meet them(unlimited
demand)
– choosing: analyses and assists decision making
– alternative uses: opportunity costs
 What is economics?

 The Economics is the science that deals with the

consequences of resources scarcity.
 The discipline of economics deals with use of
scarce resources to satisfy human wants and
needs how best to use the resources available.
 Economics is a social science that studies how
individuals and organizations in society engage in
 the production
 distribution and
 consumption of goods and services.
 Economics in a nutshell

¨ Resources are scarce

¨ What we “want” is unlimited

¨ Therefore involves “choice”

¨ Max. bens/min. resources = efficiency

 Pessimist: bottle ½ empty

Optimist: bottle ½ full

Economist: bottle ½ wasted

inefficient!
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Economics in a nutshell

ECONOMICS = costs (resource use)

benefits
CHOICE
efficiency

Weigh-up relative benefits of each course

of action and choose the action which
maximises well-being.
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 Why health economics?

c. changing expectations:
due to increasing real incomes - people demand to stay
more healthy- now a days many patients are not
prepared to put up with the pain , discomfort and lack
of mobility associated with afflictions like severe
osteoarthritis of the hip , they demand hip replacement
operation. People prefer to go for expensive dental
treatment incase of defects in the arrangement in teeth
to look more smart .
 Why health economics?

• Rapid growth in health expenditure(i.e demand

for healthcare has increased):
a. demographic changes: (a characteristic used to
classify people for statistical purposes, such as age,
race, or gender)-changes in age structure of the
population have increased the demand for health care;
elderly people require more healthcare than other age
groups …
b. technological advance(improvements in medical
technology like dialysis machine, ventilator etc.)
 Why health economics?

Resources available to health care are scarce

• Resources (land, labour, capital,enterprise) are limited
• Land refers to physical resources of the planet including mineral deposits
• Labour refers to human resource in the sense of people as workers
• Capital –resources created by human to aid production such as tools , machiney & factories
• Enterprise- the Human resource of organising the other three to produce good & services

• Therefore there is some maximum quantity of health care

that can be produced at any one time(not more than that)
• Potential uses of those resources are unbounded(limitless)
• No health care system has achieved levels of spending
sufficient to meet all wants for health care
 Why health economics?

There exists a problem of decision making

Choices must be made as to what health care should be
provided, how it should be provided, in what quantities and
how it might be distributed and at what price
 Health & Health Economics

• According to World Health organisation ,

health is a state of complete physical ,mental
and social well-being and not merely the
absence of disease of infirmity .
•Health economics is a branch of economics
concerned with issues related to scarcity in the
allocation of health and health care.
 Defination: Health Economics
• Health Economics is a division of economics
which focuses on evaluating scarcity in
different healthcare system in different
economies. Health economics seeks to
identify problems areas in health care systems
and propose solutions for pressing issues by
evaluating all possible causes & solutions
 Defination: Health Economics
• The study of how scarce resources are allocated
among alternative uses for the care of sickness and
the promotion, maintenance and improvement of
health, including the study of how healthcare and
health-related services, their costs and benefits,
and health itself are distributed among individuals
and groups in society.