about Economics and health for policy makers

1. Prepared
by
Dr. Khin Thida Nyein
Pro-rector
Yangon University of Economics

2. Economics and Health Economics

3. Understanding Public Health
 Throughout the world, recognition of the importance of
public health to sustainable, safe and healthy societies is
growing.
 Major improvements in people’s health will come from
controlling communicable diseases, eradicating
environmental hazards, improving people’s diets and
enhancing the availability and quality of effective health
care.
 To achieve this, every country needs a cadre of
knowledgeable public health practitioners with social,
political and organizational skills to lead and bring about
changes at international, national and local levels.

4. Concept of Economics
Economic theory - indispensable to
understanding the strength and
limitations of economic concepts as
applied to health and health care
Economists – better choice, making the
best use of existing resources and
growth in the availability of resources

5. Concept of Economics
Economists in all sectors – allocation of
resources between competing demands
Demands – infinite
Resources – finite
Scarcity of Resources – fundamental
problem

6. Concept of Economics
All societies – make choices
- how to allocate
whatever resources are available to the
production of health services & how to
distribute those health services

7. Key terms
 Allocative (Pareto, social) efficiency A situation in
which it is not possible to improve the welfare of one
person in an economy without making someone else
worse off.
 Commodities (or production outputs) The results
of combining resources in the production process.
They are either goods or services.

8. Pareto Efficiency

9. Key terms
 Demand (economic) The relationship between the
price of a good and the quantity demanded (economic
definition).
 Market Any situation where people who demand a
good or service can come into contact with the
suppliers of that good.
 Normative economics Economic statements that
prescribe how things should be.
 Positive economics Economic statements that
describe how things are

10. Demand Curve

11. Normative & Positive
 "The government should provide basic healthcare to
all citizens.” ------- Normative economics
 "Government-provided healthcare increases public
expenditures.“ ------- Positive economics

12. Key terms
 Opportunity (economic) cost The value of the next
best alternative forgone as a result of the decision
made.
 Production possibilities frontier (PPF) A graph
that illustrates the different combinations of outputs
that are achievable with a limited set of resources.
 Resources Every item within the economy that can be
used to produce and distribute goods and services;
classified as labour, capital and land.

13. Production possibility frontier

14. Key terms
 Utility The happiness or satisfaction a person gains
from consuming a commodity.
 Welfare (or social welfare) The happiness or
satisfaction a population gains from consuming a
commodity.

15. Utility

16. Economic problems
 Those responsible for determining and managing
health systems are typically forced to consider
questions such as:
 - At what level should hospital user charges be set?
 - Are taxes on cigarettes a useful way of promoting
health through reducing the prevalence of smoking?
 - Which is the more effective method of increasing the
take-up of health services: price controls or subsidies?
 - How should doctors be paid?

17. Economic problems
 Economics is the systematic study of resource
allocation mechanisms.
 It can be applied to any social behaviour or institution
where scarcity exists and there is consequently a need
for making choices.
 Fundamentally, economists believe that the behaviour
of people and institutions in making choices about
scarce resources is to some extent predictable.
 Underlying this predictability is the assumption that
people on the whole act in a way that makes them and
their families better off rather than worse off.

18. Four questions that are the primary concern of
economics
 What products are being produced and in
what quantities? (For example: what types
of malarial prevention measures are being
provided and how much of each type?)
 By what methods are these products
produced? (What resources are required to
produce these malarial prevention
measures?)

19. Four questions that are the primary concern of
economics
 How is society’s output of goods and services divided
among its members? (Who has access to these
measures?)
 How efficient is society’s production and distribution?
(Can we get the same amount of protection from
malaria using fewer resources? Would an AIDS
awareness campaign be a more effective use of
resources than malarial prevention?)

20. Economics and health economics
‘The economy’ - all the economic
activities and institutions (that is, any-
thing involving scarcity and choice)
within a geographically defined area;
national economy, or the global
economy, or a regional economy
Resources - labour, capital and land

21. Economics and health economics
 Labour -human resources, both manual and
non-manual, skilled and unskilled.
 Capital - goods that are used to produce other
goods or services, for example machinery,
buildings and tools.
 Land - all natural resources
 Resources – production process – commodities;
final products or intermediate products –
utility(for individual) or welfare (for
populations)

22. Economics and health economics
 Most resources can be combined to make something
that is useful.
 This process is called production.
 Commodities (or production outputs) - either final
products, which are then used to satisfy people’s
wants, or else they are intermediate products, which
are used to make other commodities.
 In economics the terms utility (for individuals) or
welfare (for populations) are used to describe the
satisfaction or happiness provided by commodities.

23. Alternative uses of a resource

24. Markets
 Market - any situation where people who demand a
good or service can come into contact with the
suppliers of that good.
 For it to be a market the buyers and sellers do not have
to physically meet
 The amount of money that is exchanged for a
commodity - price.

25. Markets
Individual consumers or households -
buyers while firms (or businesses) -
supply.
Markets for resources and markets for
intermediate goods – different
Labour market; households - supply
and firms - demand labour.

26. The flow of money, resources and
commodities

27. Markets
 Households own resources (labour, land, shares
in capital) and supply them to firms in return for
money (wages, rent, interest and profit).
 Firms turn resources into commodities and
supply them to the households, again, in return
for money.
 Households that supply more resources will
receive more money and therefore will be able to
consume more commodities.

28. Markets
 free markets –markets that involve only
firms and individuals buying and selling
commodities and resources.
 In reality, most markets have some kind of
government intervention.
 Such intervention - levying taxes, fixing
prices, licensing suppliers or regulating
quality.

29. Markets
 Alternatively, the government might decide to take
control of demand for a commodity and prohibit
private demand, or it might decide to take over supply
entirely and prohibit private supply.
 On the other hand, a government might make laws
that are intended to ‘free up’ market forces and make
markets more easily accessible.

30. Markets
 In some economies, the government plays such
a large role that markets scarcely exist at all
 Such systems - command or centrally planned
economies
 command economies - diminished in number
over the last couple of decades
 Almost every country in the world today - a
mixed economy, a system in which market
forces and central planning both play a role.

31. Efficiency
 Looking at scarcity and choice in a little more
depth
 Consider a clinic that provides ambulatory care for
patients with tuberculosis (TB) or angina
 Suppose that:
➢ the only input is nurse time;
➢TB and angina consultations are of the same
duration;
➢given current staffing the maximum number of
consultations per day is 200.

32.  Under these assumptions, we might
represent the maximum output of the clinic
with what economists call the production
possibilities frontier (PPF) – a graph that
illustrates the different combinations of
outputs that are achievable with a limited
set of resources.

33. Production possibilities frontier for
clinic (straight line)

34. Efficiency
 Figure shows what the PPF might look like for our
clinic.
 In this example, a straight line represents the PPF – we
can produce a maximum of 200 consultations per day
regardless of how we prioritize the two conditions.
 The straight line relationship implies that transferring
a nurse from one disease to another has no impact on
overall output.

35. Efficiency
 Suppose instead that some nurses have skills that
mean they are better at TB consultations (they can
achieve more with a given amount of time) and others
are better at treating angina.
 In these circumstances transferring from TB to angina
a nurse who is specialist in angina treatment could
actually increase output.
 The PPF in this case is illustrated in Figure.

36. Production possibilities frontier for
clinic (concave to the origin)

37. Efficiency
 Figure shows a PPF for an economy as a whole.
 Every point on the PPF represents an efficient level of
production.
 Allocative efficiency requires that we are at a point
where we cannot increase one output without
reducing another – hence the PPF represents efficient
points by definition.
 We could also say that we cannot increase an output
level without incurring an opportunity cost.
 The opportunity cost of an action is the level of benefit
one would have got from the best alternative action.

38. Production possibilities frontier for the
economy

39. Efficiency
 So, in terms of Figure, the opportunity cost of
increasing health care from 0 to 500 units is the
benefit from the 600 units of other commodities (food,
education, transport) that we have to go without in
order to achieve it.
 Notice from Figure, that as we continue to increase the
amount of health care, the opportunity cost of each
500-unit increase becomes greater and greater.

40. The important implications of this analysis
 A system - operating inefficiently, - possible
to produce more commodities and welfare
with current resources
 A system - already operating efficiently, - a
trade-off, an opportunity cost.
 The only other way that more of every
product can be produced - technological
improvement or an increase in the amount
of resource available

41. Categorizing economics
 Microeconomics - individual consumers and firms
and with the way these decisions contribute to the
setting of prices and output in various kinds of
market
 Macroeconomics - interaction of broad economic
aggregates (such as general price inflation,
unemployment of resources in the economy, the
growth of national output) - the interaction
between different sectors of the economy

42. Categorizing economics
 Positive economics refers to economic
statements that describe how things are.
 Such statements can be universally true,
true in some circumstances or universally
false.
 This can be established through empirical
research.

43. Categorizing economics
 Normative economics refers to economic statements
that prescribe how things should be.
 Such statements can be informed by positive
economics but can never be shown to be true or false
since they depend on value judgements.
 To be useful to policy makers, economists make use of
both positive and normative economics.
 Positive statements can describe what will happen (or
not happen) if a particular policy is carried out, but in
order to make a recommendation we need to evaluate
the policy according to one or more criteria.