Lecture 1_Intorduction to health economics.pdf

health Economic

1. Mir Najmuddin HASHIMI,MD, MSc in Health Economics
Introduction
Evolution of Economics and Health Economics
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2. References
2
▪Lectures broadly follow
▪“Ahmad Shah Salehi, Essentials to Health Economics” and
▪Introduction to Health Economics, David Wonderling, Reinhold
Gruen and Nick Black Open University Press, first Published
2005
▪Must review the required readings
▪Detail of Module assessment is Course syllabus.

3. This lecture should enable you to:
•Understand the evolution of economics and its relations
with health care
•Appreciate the essential terms and importance of economics
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4. Evolution of Economics
•Aristotle defined economics as management of home affairs.
His opinion are around city, wealth and value and money.
•Adam Smith thinks that economic is wealth
•Jean Paptiste explains that economic is the science of
regulation over the investment and money
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5. Evolution of Economics
Schools of Economics through the history
•Mercantilism 1500-1750: influence of government on
economics and a central government to control everything.
•Physiocrates 1756-1776: founded in France. Very short life
but a base for other theories and schools such as Carl marks,
Adam Smith and Kenies. They believed on land and thought
that natural goods are the source for wealth.
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6. Evolution of Economics
•Classic school of economics: founded in 1776 by Adam
Smith. Believed in freedom and thought that economic
growth links with population growth. Libral / market
economy
•Socialist School: also called Marxism. Base of communism.
Against capitalism and believe governments should have
everything under their control.
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7. Continue…
• Keynesim school: John Maynard Keynes was the founder in 1930 also called as
modern economic school. He believed that governments could turn the wheel of
economy by putting money and improve unemployment.
•In brief this school is a mixed economy model.
•Islamic school of Economics: Ibn Khaldon, Ibn Sina, Abo Nasr Farabi etc. Imam
Ghezali even discussed the demand and supply and role of governments in his
books.
•In Islam interest in wealth is the main source of corruption and gaining more
wealth is not the final goal in Islam. In Islam it is believed that Allah is the
creature and owner of everything. Which this change people behavior to have
more solidarity and empathy.
•Struggling and labor is emphasized in Islam and even call it as worship.
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8. Limits, Alternatives, and Choices (1)
Biologically, people need only air, water, food, clothing, and
shelter
But in modern society also desires goods and services that
provide more comfortable or affluent standard of living.
We want salads, pizza, houses, DVD players, internet services,
education, homeland security, cell phones, health care …
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9. Limits, Alternatives, and Choices (2)
Society possesses productive resources (labor, managerial
talent, tools, land, etc.).
These resources help us produce goods and services that
satisfy many of our economics wants.
But the blunt reality is that our economic wants far exceed
the productive capacity of our scarce resources
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10. What is
Economics?
We are forced to make
choices. This unyielding
truth underlies the
definition of economics,
which is the social science
concerned with how
individuals, institutions,
and society make optimal
(best) choices under
conditions of scarcity.
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11. Economics is about …
•Limited resources
•Unlimited “wants”
•Choosing between which
‘wants’ we can ‘afford’ given
our resource ‘budget’

12. Personal
choice…
For lunch I could have …


French Fries

Mantoo


Qabili Pallow

Salad
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Q ua bili Pa llow M a ntoo @ Ka mdesh A fg ha n Ka ba b House, O a k la nd China town

13. Government Choice
•5,000,000 vaccinations
•Two provincial hospitals
•BPHS services in four provinces
•One hunter aircraft
•10 km road
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14. Utility
• Utility refers to the satisfaction or happiness a consumer
derives from consuming a product or service.
•For instance, when you eat a sandwich because you’re hungry,
that sandwich provides you with some utility.
•Marginal utility The change in total utility derived from a
one-unit increase in consumption
•Law of diminishing marginal utility A hypothesis that
states that as consumption of a good increases so the
marginal utility (extra benefit gained) decreases
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15. Law of Diminishing Marginal Utility
As you consume more of a product, the additional satisfaction
you get from each extra unit tends to decrease.
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16. Law of diminishing marginal utility
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QuantityTotal Utility Marginal Utility
1 3 3
2 5 2
3 6 1
4 6 0

17. Resources
Resources are items within the economy that can be used to
produce and distribute goods.
Resources can be classified as:
-Labor: Human resources
-Capital: Goods that that are used to produce other goods
(machinery, buildings, tools, etc.)
-Land: All natural resources (land, oil, iron etc.)
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18. Production
•Most of the resource can be used alone, while could be
combined
•The final outcome of production that is used to meet the
needs of people
OR
•The semi-outcome of production that is used to produce
another good.
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19. commodity or resource
•Consumption describes people using up a commodity in
order to increase their utility (happiness or satisfaction
gained). Taking an aspirin is an example of
• People invest because they expect the utility, they gain from
the final product to be greater than the utility they gain from
directly consuming these resources. This involves an initial
sacrifice followed by subsequent benefits (the return)
•trade it (that is exchange it) for some other commodity or
resource
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20. Markets
•In economics, the term market is used to describe any
situation where people who demand a good or service can
come into contact with the suppliers of that good
•The amount of money that is exchanged for a commodity
is the price.
•Price is also influenced by supply and demand
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21. Opportunity
Cost
“The value of forgone benefit which could be
obtained from a resource in its next-best
alternative use.”

22. Implications
of
Opportunity
Cost
1. Deciding to do A implies
deciding not to do B, ie
value of benefits from A>B.
2. Cost can be incurred
without $ expenditure.
3. Value not necessarily
determined by “the
market”.

23. Example of opportunity cost
Education Choices
•Students face opportunity costs when deciding whether to attend college or
enter the workforce, weighing potential earnings against educational
benefits.
Consumer Behavior
•Consumers experience opportunity costs in everyday purchases, deciding
between different products or services and the benefits lost by not choosing
the alternative.
Government Policy
•Policymakers analyze opportunity costs when allocating resources for public
projects, considering the societal benefits of one initiative over another

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25. Efficiency
•Efficiency is the success with which an organization uses its resources to
produce outputs.
•the allocation of scarce resources that maximizes the
achievement of aims.
Efficiency = maximizing benefit for
resources used
•when all goods and factors of production in an economy are
distributed or allocated to their most valuable uses and
waste is eliminated or minimized

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26. Efficiency
•Technical efficiency the potential to increase quantities of outputs from
given quantities of inputs, or the potential to reduce the quantities of
inputs used in producing given quantities of outputs
Technical = meeting a given objective at
Efficiency least cost
•Allocative efficiency refers to how different resource inputs are
combined to produce a mix of different outputs.
Allocative = producing the pattern of
Efficiency output that best satisfies the
pattern of “consumer wants”
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27. Equity
•Equity is the ‘fair’ distribution of benefits across the
population
•Horizontal equity:The equal treatment of individuals or
groups who share similar circumstances.
•Vertical equity:Individuals with different (or unequal)
health should be treated differently
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28. Equity
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29. Health Manager to consider questions:
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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?

30. There are four questions that are
the 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?
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31. Definition of Health Economics
Health economics is the application of the theories, concepts
and techniques of economics to the health sector.
•It is concerned with:
•The allocation of resources between various health
activities
•The quantity of resources used in health delivery
•The organization and funding of health institutions
•The efficiency with which resources are allocated and used
for health purposes
•The effects of health services on individuals and society
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32. 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 measures
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33. Is Health Care Different?
•Presence and Extent of Uncertainty
•Prominence of Insurance
•Problems of Information
•Large Role of Nonprofit Firms
•Restrictions on Competition
•Role of Equity and Need
•Government Subsidies and Public Provision
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34. Health Expenditures as Percent of GDP in Selected
OECD Countries (1990 – most recent year)
Country 1990 2000
2006 (or most
recent year)
Austria 8.4 9.9 10.1
Belgium 7.2 8.6 10.4
France 8.4 9.6 11.1
Germany 8.3 10.3 10.6
Portugal 5.9 8.8 10.2
Switzerland 8.2 10.3 11.3
United States 11.9 13.2 15.3
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Source: Organization for Economic Cooperation and Development Health Care Data, June 2008.
In 2010 the US spent 17.9 percent of GDP and over $8400 per capita on health

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