Health Economics and Policy
Types of Economic policy
- Fiscal policy (related to government spending and tax)
o Wealth, property tax
o Social security, subsidy for food/healthcare (households), health research,
consumption tax (menstrual, tobacco)
- Monetary policy (relating to money or currency)
o
- Trade policy
o Pharmaceuticals and medical devices
o Tariffs and quotas
- Industrial policy
o Industry support companies
- Regulatory policy
o Government regulated policies
o Insurance
Chapter 1
Economy = economic activities and institutions within a defined area
Goods = result of combining resources in the production process
Welfare = sum of total utility experienced across all individuals within a society
Utility = satisfaction provided by the consumption of goods by individuals
Market = people who demand good come together with suppliers
● Agreed rules about how people behave in terms of providing information, making
payments, and delivering goods
● Price - amount of money exchanged for a good
● Households and markets exchange commodities, resources, and money
● Government intervention in markets - levying taxes, fixing prices, licensing suppliers,
and regulating quality
1. What is a resource and how are resources classified and what are the three ways of
employing a resource?
Resource = items within the economy that can be used to produce and distribute goods
● Labour - human resources, manual, non-manual, skilled/unskilled
● Capital - goods used to produce other goods (machinery, building, tools)
● Land - natural resources (oil, iron)
2. Economic terminology
Barter economy - a system where exchange takes place without the use of money
Market economy - an exchange economy with little government intervention
Command economy - an economic system where resource allocation decision are directed by
the state
Mixed economy - a market economy with substantial government intervention
Global economy - the economic activities and institutions around the world
Subsistence economy - an economy with an absence of exchange
Scarcity
, ● Quantity supplied to match the quantity demand
● Scarce resource to produce desired goods
Choice and opportunity cost
● Choice on how we spend our income, how we earn our income, and how we spend our
time
● Income is finite thus choices needs to made to ‘best’ spend the income →
highest utility or satisfaction that maximize social welfare
Marginal ‘the next unit’
● Marginal benefit of most goods tend to diminish as the consumption of goods
increases → diminishing marginal utility
Efficiency and equity
● Efficiency - relationship between input and outputs; cost and benefit
● Concerned with maximizing benefits or minimizing costs for a given level of benefit
● Technical efficiency: a given output is produced with the least input (operational
efficiency)
● Economic efficiency: a given output is produced at least cost (productive efficiency)
● Allocative efficiency: the pattern of output matches the pattern of demand
● Pareto efficiency: point at which no one can gain without someone else being made
worse off
Efficiency in healthcare
● Reduction in Length of stay
● Increase in Staff productivity
● Equipment fully utilized and maintained regularly
● Over-prescribing of drugs avoided
● Day surgery replacing inpatient stay
● Low-cost equipment replacing staff when appropriate
● Nurses replacing doctors when appropriate
Equity = distribution of benefits, fairness
Disciplines of economics
1) Microeconomics
● Concerns decisions taken by individual consumers, households, and firms
● How individual decision-making units contribute to price setting and market
2) Macroeconomics
● Interaction of broad economic aggregates - general price inflation, unemployment of
resources in the economy, growth of national output)
● Interaction between sectors of the economy
Positive economics - economic statements describing how things are, established through
empirical research
Normative economics - economic statements that prescribe how things should be, never be
shown true or false as it depend on value judgement
Chapter 2
Economic growth = positive change in the level of production of goods and services by a
country over a certain period of time
GDP = a total value of goods and services produced within one year in a country
, GNI (Gross national product) = measurement of output of economic activities undertaken by
citizens and firms of that country regardless of geographical region of the economic activity
Inflation = general rise in prices through time resulting in decrease in the value of money
● Measured with price index
● Current dollars - actual dollars spent
● Constant dollars - values that have been adjusted for inflation ‘real’ purchasing power
Exchange rates and balance of payments
● Entails how much country A’s money is worth in country B’s currency
● Depreciating - value of currency declines
● Appreciate - value of currency rises
● Balance of payment (BOP) used to measure flows between countries - measured in
currency of the country that is paying
● Debits - payments made to other countries
● Credits - payments received from other countries
● surplus/deficit
International trade
● Free trade justified through specialization - exporting goods countries are best at
producing
○ From combination of resources most suitable for producing goods
● Specialization increase global production, product variety, reduce cost of
goods → overall wealth increased
● Wider selection of available goods, services, higher employment and government
revenues
● Tariffs, import restrictions and bas act as a protection or barrier to trade
Microeconomics in health
● Risk factors = represent genetic predisposition to disease, environmental influences, and
infectious disease
● Household economy = represent factors associated with how people behave and invest
in their health (what they consume, activities undertaken)
● Health sector = comprises goods and services consumed principally to improve health
status
● National economy = represent meta-influences of government structures, markets, and
their influence on economic well-being
● Increased interaction in global economic system affect health through influence upon the
national economy and wealth (Sachs 2001)
● Economic prosperity associated with increased life expectancy
○ Increased wealth likely to increase chronic illness
● Elements in healthcare: health-related goods, services, people, access to
pharmaceutical products, health-related knowledge and technology, movements of
patients and professionals
Macroeconomics and the household
1) Wealth and health
● Wealthier = healthier due to improved nutrition, sanitation, water and education
● Trade liberalization in alleviating poverty
○ Long run yes, but adverse consequence in short term
Types of Economic policy
- Fiscal policy (related to government spending and tax)
o Wealth, property tax
o Social security, subsidy for food/healthcare (households), health research,
consumption tax (menstrual, tobacco)
- Monetary policy (relating to money or currency)
o
- Trade policy
o Pharmaceuticals and medical devices
o Tariffs and quotas
- Industrial policy
o Industry support companies
- Regulatory policy
o Government regulated policies
o Insurance
Chapter 1
Economy = economic activities and institutions within a defined area
Goods = result of combining resources in the production process
Welfare = sum of total utility experienced across all individuals within a society
Utility = satisfaction provided by the consumption of goods by individuals
Market = people who demand good come together with suppliers
● Agreed rules about how people behave in terms of providing information, making
payments, and delivering goods
● Price - amount of money exchanged for a good
● Households and markets exchange commodities, resources, and money
● Government intervention in markets - levying taxes, fixing prices, licensing suppliers,
and regulating quality
1. What is a resource and how are resources classified and what are the three ways of
employing a resource?
Resource = items within the economy that can be used to produce and distribute goods
● Labour - human resources, manual, non-manual, skilled/unskilled
● Capital - goods used to produce other goods (machinery, building, tools)
● Land - natural resources (oil, iron)
2. Economic terminology
Barter economy - a system where exchange takes place without the use of money
Market economy - an exchange economy with little government intervention
Command economy - an economic system where resource allocation decision are directed by
the state
Mixed economy - a market economy with substantial government intervention
Global economy - the economic activities and institutions around the world
Subsistence economy - an economy with an absence of exchange
Scarcity
, ● Quantity supplied to match the quantity demand
● Scarce resource to produce desired goods
Choice and opportunity cost
● Choice on how we spend our income, how we earn our income, and how we spend our
time
● Income is finite thus choices needs to made to ‘best’ spend the income →
highest utility or satisfaction that maximize social welfare
Marginal ‘the next unit’
● Marginal benefit of most goods tend to diminish as the consumption of goods
increases → diminishing marginal utility
Efficiency and equity
● Efficiency - relationship between input and outputs; cost and benefit
● Concerned with maximizing benefits or minimizing costs for a given level of benefit
● Technical efficiency: a given output is produced with the least input (operational
efficiency)
● Economic efficiency: a given output is produced at least cost (productive efficiency)
● Allocative efficiency: the pattern of output matches the pattern of demand
● Pareto efficiency: point at which no one can gain without someone else being made
worse off
Efficiency in healthcare
● Reduction in Length of stay
● Increase in Staff productivity
● Equipment fully utilized and maintained regularly
● Over-prescribing of drugs avoided
● Day surgery replacing inpatient stay
● Low-cost equipment replacing staff when appropriate
● Nurses replacing doctors when appropriate
Equity = distribution of benefits, fairness
Disciplines of economics
1) Microeconomics
● Concerns decisions taken by individual consumers, households, and firms
● How individual decision-making units contribute to price setting and market
2) Macroeconomics
● Interaction of broad economic aggregates - general price inflation, unemployment of
resources in the economy, growth of national output)
● Interaction between sectors of the economy
Positive economics - economic statements describing how things are, established through
empirical research
Normative economics - economic statements that prescribe how things should be, never be
shown true or false as it depend on value judgement
Chapter 2
Economic growth = positive change in the level of production of goods and services by a
country over a certain period of time
GDP = a total value of goods and services produced within one year in a country
, GNI (Gross national product) = measurement of output of economic activities undertaken by
citizens and firms of that country regardless of geographical region of the economic activity
Inflation = general rise in prices through time resulting in decrease in the value of money
● Measured with price index
● Current dollars - actual dollars spent
● Constant dollars - values that have been adjusted for inflation ‘real’ purchasing power
Exchange rates and balance of payments
● Entails how much country A’s money is worth in country B’s currency
● Depreciating - value of currency declines
● Appreciate - value of currency rises
● Balance of payment (BOP) used to measure flows between countries - measured in
currency of the country that is paying
● Debits - payments made to other countries
● Credits - payments received from other countries
● surplus/deficit
International trade
● Free trade justified through specialization - exporting goods countries are best at
producing
○ From combination of resources most suitable for producing goods
● Specialization increase global production, product variety, reduce cost of
goods → overall wealth increased
● Wider selection of available goods, services, higher employment and government
revenues
● Tariffs, import restrictions and bas act as a protection or barrier to trade
Microeconomics in health
● Risk factors = represent genetic predisposition to disease, environmental influences, and
infectious disease
● Household economy = represent factors associated with how people behave and invest
in their health (what they consume, activities undertaken)
● Health sector = comprises goods and services consumed principally to improve health
status
● National economy = represent meta-influences of government structures, markets, and
their influence on economic well-being
● Increased interaction in global economic system affect health through influence upon the
national economy and wealth (Sachs 2001)
● Economic prosperity associated with increased life expectancy
○ Increased wealth likely to increase chronic illness
● Elements in healthcare: health-related goods, services, people, access to
pharmaceutical products, health-related knowledge and technology, movements of
patients and professionals
Macroeconomics and the household
1) Wealth and health
● Wealthier = healthier due to improved nutrition, sanitation, water and education
● Trade liberalization in alleviating poverty
○ Long run yes, but adverse consequence in short term
