Basic Principles of Health Economics

Dr. Muna Hassan Mustafa

Definitions
Economics: The study of how a society with limited resources decides what goods to produce, how to produce them, and how to distribute them among its members. Resources mean: Money man- material time.

Definitions
Health economics: It is the study of the value of health and how it can be produced most efficiently and distributed to maximize social welfare. is concerned with the connection between health and the resources which are consumed in promoting it.

 People have infinite needs but They have finite(limited) resources They have to make choices which needs are most important How to use available resources.

Uses of Health Economics

Health economics helps in: Defining and measuring health - Determining the value people set on health - The different channels for producing health Determining the best Ways and methods of financing health care

Uses of Health Economics

Allocation of resources to and within the health sector and the criteria used in allocation. Deciding How best to spend money on health what services and services mix to use Evaluating the health system performance compared with other health systems in terms of inputs (money) and out puts (health)

Health care markets

Components of a market: 1. Good: a commodity whose consumption provides utility for individuals 2. Demand : the quantity of good purchased at any given price.
Determinants of demand:
Availability (supplier offer relevant service Price: how much does it cost? Quality

Health care markets

Components of a market: 3. Need: what a person requires

4. Want: subjective description of needs

5. Supply: the amount of good that producers are willing and able to sell at various prices

Optimum market conditions

1. Perfect competition:
There should be free entry to market but in health care we need licensing and registrations
There should be many buyers and sellers so that price is not affected In health care some markets are more competitive than others

Optimum market conditions

1. Perfect competition cont:
Perfect knowledge: Suppliers know how to produce and consumers know prices and able to chose lower price But In health providers are not homogeneous , consumers can not judge quality or quality is not the same so competition may not lower prices

Optimum market conditions

2. Complete market:
Markets work best when all costs and benefits of a product are taken into account in setting its price(complete market) But in health we have what we call externalities. Some products when consumed by somebody it benefits or damages another person.
There is high degree of unpredictability of need.

Optimum market conditions

3. Consumers as rational maximsers: consumers should have full information about the product Health market is characterized by :
imperfect information for consumers asymmetrical information between suppliers and consumers suppliers acting as agents for patients