What Are Economics And Health Economics Farid Abolhassnai

ﺑﺴﻢ ﺍﻟﻠﻪ ﺍﻟﺮﺣﻤﻦ ﺍﻟﺮﺣﻴﻢ What Are Economics And Health Economics? Farid Abolhassnai M. D.

Don’t Panic

Learning Objectives After working through this chapter, you will be able to: • explain what economics is and the problems it seeks to solve • describe what is meant by efficiency and opportunity cost • define and use a number of fundamental economic concepts • explain why economics is applicable to health • define health economics and describe the scope of health economics

Key Terms Allocative (Pareto, social) efficiency: A situation in which it is not possible to improve the welfare of one person in an economy without making someone else worse off. Commodities (or production outputs): The results of combining resources in the production process. They are either goods or services. Demand (economic): The relationship between the price of a good and the quantity demanded (economic definition). Market: Any situation where people who demand a good or service can come into contact with the suppliers of that good. Normative economics: Economic statements that prescribe how things should be.

Key Terms Opportunity (economic) cost: The value of the next best alternative forgone as a result of the decision made. Positive economics: Economic statements that describe how things are. Production possibilities frontier (PPF): A graph that illustrates the different combinations of outputs that are achievable with a limited set of resources. Resources: Every item within the economy that can be used to produce and distribute goods and services; classified as labor, capital and land. Utility: The happiness or satisfaction a person gains from consuming a commodity. Welfare (or social welfare): The happiness or satisfaction a population gains from consuming a commodity.

Common Economic Questions • At what level should hospital user charges be set? • Are taxes on cigarettes a useful way of promoting health through reducing the prevalence of smoking? • Which is the more effective method of increasing the take-up of health services: price controls or subsidies? • How should doctors be paid?

Definition of Economics The systematic study of resource allocation mechanisms • It can be applied to any social behavior or institution where scarcity exists and there is consequently a need for making choices. • The behavior of people and institutions in making choices about scarce resources is to some extent predictable. • People on the whole act in a way that makes them and their families better off rather than worse off

Primary Concern of Economics 1. What products are being produced and in what quantities? (For example: what types of malarial prevention measures are being provided and how much of each type? ) 2. By what methods are these products produced? (What resources are required to produce these malarial prevention measures? ) 3. How is society’s output of goods and services divided among its members? (Who has access to these measures? ) 4. How efficient is society’s production and distribution? (Can we get the same amount of protection from malaria using fewer resources? Would an AIDS awareness campaign be a more effective use of resources than malarial prevention? )

The ECONOMY All the economic activities and institutions (that is, anything involving scarcity and choice) within a geographically defined area

Resources Every item within the economy that can be used to produce and distribute goods and services 1 - Labor: human resources, both manual and non-manual, skilled and unskilled. 2 - Capital: goods that are used to produce other goods or services, for example machinery, buildings and tools. 3 - Land: all natural resources. It also refers to manufactured consumables (i. e. almost everything else that does not fall under labor or capital).

Production Combining resources (that are not useful in themselves) to make something that is useful Intermediate Product Final Product Resources Production Commodities Final Product

Utility and Welfare Satisfaction or Happiness provided by commodities Utility Welfare

The characteristics that distinguish commodities • Physical attributes Ice cream and a cup of tea • Date or time Ice cream in summer vs. ice cream in winter • Place A cup of tea in a fashionable café vs. tea in local supermarket

What could be done with a commodity or resource • Consumption: using up a commodity in order to increase their utility • Investment: using up a commodity to make other commodities for subsequent benefits • Exchange: trading a commodity for some other commodity or resource

Alternative Uses of A Resource or commodity Exchange Production Other commodities Consumption Increased Utility

Markets Any situation where people who demand a good or service can come into contact with the suppliers of that good. For it to be a market the buyers and sellers do not have to physically meet

The Flow of Money, Resources and Commodities Households Consumption Money Free Market Resources Money Commodities Investment Production Firms Price: The amount of money that is exchanged for a commodity

Government interventions in the market • Levying taxes • Fixing prices • Licensing suppliers • Regulating quality • Prohibit private demand • Prohibit private supply

Continuum of Economies Free Mixed Command

Production Possibilities Frontier

Production Possibilities Frontier (Concave to the origin)

Opportunity Cost The opportunity cost of an action is: The level of benefit one would have got from the best alternative action

Production possibilities frontier for the economy Opportunity Cost

Efficient, Inefficient, Not feasible

Shift of PPF

Important Conclusions • If a system is operating inefficiently then it is possible to produce more commodities and therefore more welfare with current resources. • If a system is already operating efficiently, then to increase the quantity produced of one commodity you have to reduce the quantity produced of some other commodity. There is a trade-off, an opportunity cost. • The only other way that more of every product can be produced is: – technological improvement – an increase in the amount of resources available (such as an increase in population).

Microeconomics is concerned with: – the decisions taken by individual consumers and firms and; – with the way these decisions contribute to the setting of prices and output in various kinds of market

Macroeconomics is concerned with the interaction of broad economic aggregates such as: – general price inflation; – unemployment of resources in the economy; – the growth of national output and – equity

Positive Economics Positive economics refers to economic statements that describe how things are. Such statements can be: – universally true; – true in some circumstances or – universally false This can be established through empirical research.

Normative Economics • Normative economics refers to economic statements that prescribe how things should be. • Such statements can be informed by positive economics but can never be shown to be true or false since they depend on value judgment.

Can economics be applied to health? • Scarcity of resources • The provision of one service, X, necessarily means that a second service, Y, is displaced • The opportunity cost of providing service X = The health gain that we would have got from service Y • It is also important to be concerned about those who receive the service X • Economists try to making such rationing decisions explicit

The Mission of Health Economics Health economics is not concerned with ‘saving money’ but with improving the level and distribution of population health with the resources available