TOPIC ONE
INTRODUCTION TO HEALTH ECONOMICS
1.1 INTRODUCTION
This topic introduces the student to the scope and relevance of health economics. The topic
discusses foundations of health economics, areas normally covered in health economics and
also its importance and characteristics.
1.2 TOPIC OBJECTIVE
At the end of this lecture the learner should be able to:
Define health and healthcare
Discuss the importance of health economics
Explain the characteristics of healthcare as a commodity
1.3 The scope and relevance of health economics
In this sub-topic, we define Economics, Health Economics and explain the scope and
relevance of health economics.
Definition of Economics
- The best starting point for consideration of the contribution of health economics to health
planning is a definition of economics. Economics is defined as:
"the study of how people and society end up choosing, with or without the use of
money, to employ scarce productive resources that could have alternative uses, to
1
, produce various commodities and distribute them for consumption, now or in the
future, among various persons and groups in society. It analyses the costs and
benefits of improving patterns of resource allocation."
- This definition does not restrict economics to any one kind of human activity: it applies to
all activities where scarcity exists and there is thus a need for making choices.
- Indeed, economics is often described as the study of scarcity and choice.
- The emphasis of the above quotation is on describing and analysing decisions to do with
scarcity and choice.
- This area of economics is called positive economics and it is concerned with 'what is', or
'was', or 'will be'.
- In addition, normative economics attempts to determine what 'should be', not merely
'what is'.
- Normative economics thus has to make judgements about the norms, or standards to be
applied and disagreement over normative statements cannot easily be settled by empirical
observation.
- For instance debate over the desirability of a private market for health care is often as much
concerned with issues of normative economics (such as the value to be placed on freedom
of consumer choice) as it is with issues of positive economics (such as how a private market
behaves in practice).
- Although positive economics may not state what 'should be', it is still relevant to policy-
making.
- For instance, positive economics cannot decide what health objectives ought to be achieved
but it can explore the implications of adopting different objectives and different policy
options.
Definition of Health Economics
- Health economics can be defined broadly as the application of the theories, concepts and
techniques of economics to the health sector. It is thus concerned with such matters as:
o the allocation of resources between various health-promoting activities
o the quantity of resources used in health delivery
o the organization and funding of health institutions
o the efficiency with which resources are allocated and used for health purposes
o the effects of preventive, curative and rehabilitative health services on individuals and
society.
- Although health economics has only recently developed as a sub-discipline of economics, it has
established an interest in many of the main theoretical areas of economics. Figure 1 attempts to
indicate the intellectual span of health economics and the main fields studied within health
economics. The concerns of the different fields are as follows:
- Box A: what determines health? What is the relative contribution of health services, income levels,
education, environmental factors etc?
- Box B: what value is placed on health and how can it be quantified?
2
INTRODUCTION TO HEALTH ECONOMICS
1.1 INTRODUCTION
This topic introduces the student to the scope and relevance of health economics. The topic
discusses foundations of health economics, areas normally covered in health economics and
also its importance and characteristics.
1.2 TOPIC OBJECTIVE
At the end of this lecture the learner should be able to:
Define health and healthcare
Discuss the importance of health economics
Explain the characteristics of healthcare as a commodity
1.3 The scope and relevance of health economics
In this sub-topic, we define Economics, Health Economics and explain the scope and
relevance of health economics.
Definition of Economics
- The best starting point for consideration of the contribution of health economics to health
planning is a definition of economics. Economics is defined as:
"the study of how people and society end up choosing, with or without the use of
money, to employ scarce productive resources that could have alternative uses, to
1
, produce various commodities and distribute them for consumption, now or in the
future, among various persons and groups in society. It analyses the costs and
benefits of improving patterns of resource allocation."
- This definition does not restrict economics to any one kind of human activity: it applies to
all activities where scarcity exists and there is thus a need for making choices.
- Indeed, economics is often described as the study of scarcity and choice.
- The emphasis of the above quotation is on describing and analysing decisions to do with
scarcity and choice.
- This area of economics is called positive economics and it is concerned with 'what is', or
'was', or 'will be'.
- In addition, normative economics attempts to determine what 'should be', not merely
'what is'.
- Normative economics thus has to make judgements about the norms, or standards to be
applied and disagreement over normative statements cannot easily be settled by empirical
observation.
- For instance debate over the desirability of a private market for health care is often as much
concerned with issues of normative economics (such as the value to be placed on freedom
of consumer choice) as it is with issues of positive economics (such as how a private market
behaves in practice).
- Although positive economics may not state what 'should be', it is still relevant to policy-
making.
- For instance, positive economics cannot decide what health objectives ought to be achieved
but it can explore the implications of adopting different objectives and different policy
options.
Definition of Health Economics
- Health economics can be defined broadly as the application of the theories, concepts and
techniques of economics to the health sector. It is thus concerned with such matters as:
o the allocation of resources between various health-promoting activities
o the quantity of resources used in health delivery
o the organization and funding of health institutions
o the efficiency with which resources are allocated and used for health purposes
o the effects of preventive, curative and rehabilitative health services on individuals and
society.
- Although health economics has only recently developed as a sub-discipline of economics, it has
established an interest in many of the main theoretical areas of economics. Figure 1 attempts to
indicate the intellectual span of health economics and the main fields studied within health
economics. The concerns of the different fields are as follows:
- Box A: what determines health? What is the relative contribution of health services, income levels,
education, environmental factors etc?
- Box B: what value is placed on health and how can it be quantified?
2
