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Summary HPI4001 Case 1 Economics of Healthcare
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Case 1 Economics of Healthcare 16-09-2022What is economics?
The study of choices under conditions of scarcity to increase efficiency (= related to the
tension between unlimited needs and limited resources to fulfil these needs) / allocation of
scarce resources. All societies face three fundamental questions: (1) what to produce; (2)
how to produce what is to be produced; and (3) how to distribute what is to be produced
between individual citizens
Core concepts of economics in the text
Scarcity = the tension between our limited resources and our unlimited wants/needs. If
resources are insufficient to meet all demands, they are scarce.
Preferences
- Based on your preferences, you make choices
- You want the choice which gives the most utility
Certain characteristics any consumer wants to have in a good or service that makes it
preferable to them. For example, Coca Cola made it more preferable to make a Light version.
Choices = Because there is scarcity, you have to make choices. We believe that society
(macro-level) is the result of choices of e.g. individuals (microlevel).
Therefore, economics is a study of choices.
We assume people make rational decisions. This does not necessarily mean that people
choose the smartest option, but rather that people choose what they think is smartest.
Allocation = Resources have to be allocated/divided, because of scarcity. Economics are
concerned with the allocation of scarce resources among competing demands
Efficiency = The lowest amount of inputs to create the greatest amount of outputs. Efficiency
relates to the use of all inputs in producing any given output, including personal time and
energy. Being efficient simply means reducing the amount of wasted inputs
Allocative efficiency = pareto efficiency = distribution of resources in which no one can be
better off without making someone worse off
Perfect competition = has 4 conditions:
- many buyers and sellers
- homogenous product
- perfect information
- free entry and exit.
Thus, producers in a perfectly competitive market are subject to the prices determined by
the market and do not have any leverages (optimal allocation)
- If some is not fulfilled there is market failure/insufficient market and the government
needs to act and interfere
- If you have perfect competition it leads directly to pareto optimum
- If you have perfect competition you have high efficiency
, Characteristics of monopoly =
- Single seller and many buyers
- Unique product
- Ability to set prices
- Barriers to entry
Utility = the aggregate sum of satisfaction or benefit that an individual gains from
consuming a given amount of goods or services in an economy. In health, an unit of utility is
QUALY’S or DALY’S.
- Measurement for cost-effectiveness
- Choices lead to utility
Opportunity costs = the costs of the best alternative option, the benefits you are missing out
on by making a choice.
INTERRELATIONS !! In exam you need to explain how definitions and concepts are
related to each other
“In economics there is a study of scarcity, because there are unlimited needs and limited
resources. That means that we have to make choices based on preferences of society and
individual level. We have to allocate the resources so that we have the highest utility for all
individuals. But, by making choices of allocation we also have to consider opportunity costs,
because of choices you can miss out better outcomes when choosing an alternative. “
In healthcare there is no perfect competition (many buyers sellers, open entry, homogenous
product, perfect information). When all of these 4 conditions exist in a market you speak of
pareto-optimum; best allocation of resources, no one can be better off. However in
healthcare, there is no perfect competition, at least 1 condition is missing we speak of
market failure. So, the government has to intervene in this market.
What is health economics?
Health economics =
- an applied field of economics
- a study of choices/behaviour of individuals, health care providers, public and private
organizations and government in health decision making
- a study of how (scarce) resources are allocated to and within the health system
What is health care economics?
Health care economics =
- The subject of analysis is the health (medical) care industry, not health in general
- Health care economics is a term used to describe the various factors that converge to
influence the health care industry’s costs and spending. As a field of study, health
care economics seeks to understand the role that individuals, health care providers,
insurers, government agencies, and public and private organizations play in driving
these costs.
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