Health Economics

Question 1

What is economics?

Answer 1

The study of scarcity. As resources as limited, need to make choices.

Question 2

What are they key assumptions of economics?

Answer 2

Individuals will:

• make rational and informed choices
• will seek to maximise their utility (satisfaction)

Question 3

What is inflation?

Answer 3

The general rise in prices through time which results in a decrease in the value of money.
Current (actual money spent) vs. constant (adjusted for inflation to reflect purchasing power) dollars
Using constant dollars allows us to observe and analyse trends over time more accurately as accounts for inflation

Question 4

What is a price index?

Answer 4

Used to measure inflation by monitoring the value of a basket of goods purchased by households over time. Measures change from a base year.

Question 5

Inflation/Price Index - What are current dollars?

Answer 5

Actual dollars spent

Question 6

Inflation/Price Index - What are constant dollars?

Answer 6

Values adjusted for inflation to reflect actual purchasing power

Question 7

What are the global and national macroeconomic factors that impact on health?

Answer 7

Global: economic opening, cross-border flows, international rules and regulations.

National: risk factors, national and household economies, health systems

Question 8

What is marginal cost?

Answer 8

The change in total cost if one additional unit of output is produced.

Example: One doctor can treat 10 patients in one session and costs $400. If we needed to treat 11 patients in the session an additional doctor would be required - the marginal cost for that extra patient would be $400.

Question 9

What is marginal benefit?

Answer 9

Change in benefit (additional benefit)

Question 10

What is diminishing marginal utility?

Give an example from healthcare.

Answer 10

Marginal benefit must outweigh marginal cost.

The marginal benefit of most goods tends to diminish as the consumption of goods increases

Also applies to healthcare. Eg. Screening programs - at a point additional screening does not provide additional utility relative to the cost of the screening program.

Question 11

What is welfarism?

Answer 11

A policy objective to maximise welfare/utility for the whole population

Question 12

What is extra-welfarism?

Answer 12

A policy objective focused on maximising health and health related utility as an objective of health services (QALY, DALY etc.) Maximising the health of society as a whole, rather than just comparing it with the utility derived from other goods.

Question 13

What is an economy?

Answer 13

All economic activities and institutions within a defined area - regional, national, global

Question 14

What are resources?

Answer 14

Items within an economy that can be used to produce and distribute goods.

• Labour
• Capital
• Land

Question 15

What are goods?

Answer 15

Products or services.
Individuals benefit from ownership of a good in three ways:
- direct utility (consume)
- investment value (use to make resource)
- exchange values (sell)

Question 16

What is a market?

Answer 16

A situation where buyers and sellers come together to trade.
Different types of markets include:
- Command/centrally planned economy - government controlled
- Market economy - limited government intervention
- Mixed economy - government intervention and market forces

Question 17

What is Balance of Payments? (BOP)

Answer 17

Measures the flow of money/currency between countries.
A surplus or deficit indicates the country’s performance in international trade.
Imports = Debits
Exports = Credits

Question 18

What are exchange rates?

Answer 18

Tells how much one country’s money is worth in another country’s currency

Currency Appreciating = currency value is increasing relative to another

Currency Depreciating = currency value is decreasing relative to another

Question 19

What is positive economics?

Answer 19

Statements that describe how things are.

Established through empirical research.

Can be universally true, true in some circumstances, or universally false.

Question 20

What is normative economics?

Answer 20

Statements that describe how things should be.

Can be informed by positive economics but depend on value judgements so can never be shown to be true or false.

Question 21

What is scarcity?

Answer 21

Lack of resources available to meet all human wants. Thus require choices in production and consumption.

Question 22

What is opportunity cost?

Give an example from health.

Answer 22

The value of the benefit of the next best alternative.

The satisfaction or benefit forgone. Individuals must make choices and trade-offs in the use of limited income.

Choices must be made about the allocation of finite resources - for example governments must choose between alternative public services. This may mean a choice between deciding to fund either a prevention or a treatment program for malaria. If the treatment program is chosen, the benefits of the prevention program as the alternative are the opportunity cost.

Question 23

What is utility

Answer 23

Satisfaction or benefit gained from consuming a good or service. Often quality of life or well-being.

Example: Satisfaction gained from taking painkillers for a headache

Question 24

What is micro-economics?

Answer 24

Looks at decisions made at the individual level.

Consumers, households, firms etc.

Question 25

What is macro-economics?

Answer 25

Looks at the performance and functioning of the economy as a whole - the interaction of broad economic aggregates and sectors. Economic growth, output, employment, inflation etc.

Question 26

What is economic growth?

Answer 26

Positive changes in the level of production of goods by a country over a period of time.

Question 27

What is GDP?

Answer 27

Gross Domestic Product.
The total value of goods and services produced within one country in one year. Measures output and uses internal prices.
The main indicator used to measure the size of an economy and therefore economic growth.

Question 28

What is GNI?

Answer 28

Gross National Income.
The total output of economic activity of one country in one year including that generated by citizens and firms outside the country. Used to classify stage of development.
Also used to measure economic growth and income generated by the economy.

Question 29

What is PPP?

Answer 29

Purchasing Power Parity.
Using exchanges rates, equates price of a basket of identical goods and services in different countries. A more accurate comparison of GDP.

Question 30

What is efficiency?

Answer 30

General term that describes the relationship between inputs and outputs.

Seeks to maximise benefits (with available resources) and minimise cost.

Types of efficiency:
Technical - output produced with least inputs (minimise waste)
Economic - output produced at lowest cost
Allocative - output matches demand (maximises social welfare)
Pareto - point at which no one can gain without someone being made worse off

Example: Investing in a treatment that delivers the highest number of QALYs for a predetermined amount of budget or Choosing supplier X as cheaper than treatment supplier Y for same treatment

Question 31

What is equity?

Answer 31

Seeks the distribution of benefits.
Related to justice and fairness.
Not the same as equality.
In competition with efficiency (which aims to maximise benefits).

Question 32

What is marginal cost?

Answer 32

The change in total cost if one additional unit of output is produced.

Example:

Question 33

What is marginal benefit?

Answer 33

The change in benefit if an one additional unit of output is produced.