HEALTH CARE ECONOMICS

24th June 2010

Mr.Peter Kithuka

Discipline that deals with allocating scarce resources

what is economics?
Adam smith,1776:the science that studies the nature and source of
national wealth
Lionell Robins,1932:the science that studies human behaviour in
relation to ends and means
What is Microeconomics? Study of individual and household behaviour as
they make choices on the use of scarce resources to satisfy their
needs
Macroeconomics-the study of national aggregates e.g
inflation,income,unemployment etc
Health economics- the application of economic principles in health
,involves the study of application of resources for care of the sick
and promotion of health e.g economic resources: land, labour, capital,
time etc
Methods of economic evaluation
cost minimization analysis- use of minimal resources possible
cost benefit analysis- what are the benefits?
Cost effectiveness- will the application of resources make a
difference in health?
Cost utility QALY(Quality Adjusted Life Years)-will the quality of
life improve or change?

Terminologies
Want, need, demand, effective demand, supply,
effective supply.
Demand- quantity of goods and services the buyer is willing to
purchase at a given price
Efective supply- an increase in prices of health care commodities and
services reduce their consumption
Effective demand- quantity of goods and services the buyer is able and
willing to purchase at a given price
Question: HOW do consumers of health care commodities express their
willingness to purchase goods and services
1.when they forego work to seek healthcare services
2.they travel to health facilities
3. When they qeue for services
4. They will spend resources to get health services
Supply- quantity of goods and services a seller is willing to give to
the marke at a given price
Effective supply- quantity of goods and services a seller is willing
and ble to offer to the market at a given price
Markets include: healthcare markets,pharmaceutical market,insurance,
physicians and nurses,manpower,physician and nurses services,
institutional market
Market- interaction between forces of supply and demand as buyer and
sellers exchange goods and services
When forces of demand and supply interact theres a point at which the
market clears, this means demand=supply, this point is called the
market equilibrium
The price at which demand = supply is called the equilibrium price or

market exchange rate

The law of Demand - The higher the price the lower the quantity
demanded, other factors remaining constant
The law of Supply - The higher the price the higher the quantity
supplied, holding other factors constant
Factors affecting demand - presence of substitute, price, income, preferences
Factors affecting supply - market prices, price of inputs, number of
suppliers in the market
In order for govt. To regulate the various health care markets there
is need for policy interventions aimed at restricting or encouraging
entry and exit from the market