3.Supply and Demand Framework of Health Eco (1)

7/28/2019 3.Supply and Demand Framework of Health Eco (1)

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HEALTH

ECONOMICS


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Having defined and studied the concepts of

economics and health, we again look at the

definition of Health Economics. Mills and Gilson

of the London School of Hygiene and Tropical

Medicine give a deeper definition:Health Economics can be defined broadly as

the application of the theories, concepts and

techniques of economics to the health careSector.


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Kenneth Arrow, a Nobel Laureate for

Economics once stipulated that a separate

discipline of economics should be devoted to

the health care sector.

Arrow believed that the health sector behavespeculiarly different from the economic sectors

and that a careful application of economic

concepts and methodology should be accordedto it. This gave birth to the new discipline of

Health Economics in the 1980s.


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Health and Economics is thus now concerned with such

matter as: The allocation of resources between various health-

promoting activities;

Quantity of resources used in healthcare delivery to

improve health; Organization and funding of health organizations;

Efficiency of the allocation and the use of resources

for health; and Assessment of the effects of preventive,

Curative, and rehabilitative health services on

Individuals and society.


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The DISCIPLINE OF

HEALTH ECONOMICS


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Framework of Health Economics(Center of Health Economics, The University Of York)

WHAT INFLUENCES HEALTH

Occupational hazard, Education and

income

AWHAT IS HEALTH? WHAT IS ITS VALUE

Perceived attributes of health, health indices,

value of life

B

DEMAND FOR HEALTH CARE

Influence of A and B on Healthcare

Seeking Behavior

SUPPPLY OF HEALTH CARE

Costs of production

Alternative Production Techniques

Input Substitution

MICROECONOMIC

EVALUATION

Cost MinimizationCost Effectiveness

Cost Benefit/Utlility

analysis

MARKET EQUILIBRIUMMoney Prices

Time Prices

Equilibrating mechanisms

PLANNING, BUDGETING AND

MONITORING MEACHANISMS

Evaluation of Effectiveness

EVALUATION AT WHOLE SYSTEM LEVEL

Equity and Allocative Efficiency Criteria

G

C

F

H

D

E


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The discipline of Health Economics, being a relatively

recent development can be summarized by the

illustration preceding framework. In a broad sense,

it seeks to maximize the output out of the given

inputs of activities or alternative programs whichseek to produce better health.

It also seeks to ensure that each and every resource

used for the production of health gives the most

impact on the production of better health.


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Based on the framework,

we see that HealthEconomics studies the

factors that influence health

(A). These factors that

influence are the proximate

and underlying socio-

cultural and demographic

factors that directly orindirectly affect health

outcomes


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In (B) we try to understand

the attributes of health.

More importantly andcentral to the objective of

maximizing the impacts of

health intervention, healtheconomist also try to

measure the value of health.

It is most important to

remember that healthshould be measured and

valued.


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The demand for health (C)

should be very clearly

understood. It is important to

understand how the factors in(A) and (B) affect peoples

health seeking behavior. It is

important to understand the

factors influencing the

demand for healthcare. It is

important to understand not

only how these factors affect

the current demand but also

how will it change in the

future.


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Balancing the demand for

healthcare with the supply of

healthcare (D) is very important. In

the succeeding lessons we will

understand how the forces of

supply and demand interact and

influence the prices of health

goods and commodities (F).

Remember that when healthcaregoods and services are being

supplied without aligning these to

what is demanded, these healthcare

goods and services are wasted. Onthe other hand, problems also

occur when healthcare is being

demanded but not adequately

supplied.


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Microeconomic evaluation

(E) allows us to evaluate and

choose between different or

alternative healthinterventions, approaches or

programs. It is the systematic

and objective way of different

alternatives in producing

better health

It seeks to measure costs of

healthcare alternativeintervention and compare

them to the health outcomes

such alternatives deliver.


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The different economic

evaluation techniques are the

following: cost minimization,

cost-effectiveness analyses,

cost benefit analyses and cost

utility analyses.


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Planning, budgeting, and

monitoring (H) are health

administration functions which

try to ensure that the chosenprograms or alternatives (E) are

implemented effectively and

efficiently.

Finally, general evaluations (G)

are done to assess the equities of

programs (i.e., everyone gets

equal capability of accessinghealth care) and efficiencies

relating to such different

programs.


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SUPPLY ANDDEMAND

andHEALTH


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You can even make a parrot into a learned economist-

all it must learn are the two words: supply anddemand.

This statement by an unknown author characterizes the

central role of the concepts of supply and demand in

understanding basic economic principles.

It does not tell us that the concepts of supply and demand

are very simple that even a parrot can understand it. Itimplies that they are crucial to the understanding of

Economics. Thus, mastery of these concepts is

Required for us to appreciate economics.


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Consider the following questions:

Why do umbrellas become relatively expensive during July,

August, and September? Why do halo-halo stores sprout during summer?

Why did oil prices increase during the Persian Gulf War in 1991?

Why is there a pressure to increase the salaries of nurses in the

Philippines when a lot of Filipino nurses are being recruitedabroad?

Why are firecrackers very expensive days before

New Years eve and almost given away after new year?

All these questions can be easily answered by the concepts

Of supply and demand.


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The Theory of Supply and Demand

Have you ever wondered how businesses pricetheir products? What do you think will happen if

Caltex decides to sell their unleaded gasoline at

50% lower per liter or at least 25% higher? Are

businesses really the ones who control the prices

of their products? Or do they price their products

according to they think their buyers will buy

them?


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Every purchase made on a certain commodity

maybe looked upon as a peso vote. Meaning achoice (vote) has been made on the specific

product and money (Peso) was exchanged for the

specific good or service. Thus the term pesovote was coined. Peso votes then create a

market mechanism wherein buyers of

commodities and the suppliers (or producers) of

such commodities, dynamically and

constantly interact.


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This relationship between buyers who

demand, and the producers who create a

supply of goods, is called supply and

demand dynamics. The Law of Supply and

Demand show how peso votes decide the

prices and quantities of goods.


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Markets: Interaction Between Supply and Demand

.Demand emanates from consumers. Consumers demand

to be able to satisfy their needs, and more importantly,wants.

Needs are the things that individuals must have to be

able to survive ( basic/physiologic needs or to be inthe state of physical, social, and mental equilibrium.

Needs are best described by the sociologist

/psychologist Abraham Maslow, in his Hierarchy of

Needs


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.

k i l d d


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.Wants , from an economic or business perspective, are

a specific manifestation of a need. It can be in fact be

derived from a need. Therefore, they are specific

preference or a choice to be able to satisfy a need.

For example, hunger creates the need for the food and

water which are basic needs. But when an individual

decides to get a burger from McDonalds, it becomes

WANT- a specific manifestation of a basic need(food).

k i S l d d


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.

Demand is the decision to satisfy a wantor need plus the capability of accessing

and paying such.

An individual who decides to get a new

car but cannot afford to buy it is not

creating a demand for the car. To demandit, the consumer must be willing to buy

and be capable of paying for it.

M k I i B S l d D d


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.

Supply emanates from the producers andsellers. Producers and sellers form the

other side of the demand-supply

interaction. Remember that producers andsellers (businesses) produce and sell to

make profits. They prefer a scenario

where they can sell their products athigher prices- simply because it will give

them higher profits.

M k I i B S l d D d


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.Markets are produced when demand forces from

consumers and producers and sellers interact with oneanother.

Satisfy:

Needs

Wants

Profits

Consumers Producers and Sellers

Demand Supply

MarketsPreference:

Low Prices

Preference:

High Prices

M k I i B S l d D d


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.The demand schedule represents the

relationship between the price of a certain

product and the quantity that consumers

want to buy of such product.The supply schedule, on the other hand,

shows the relationship of the price of a

certain good and the quantity producers willbe willing to produce and sell.

M k t I t ti B t S l d D d


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.Ceter is par ibusis a term that means all

other things are being held equal.

In showing the relationship of the price and

the quantity of goods demanded ( demandschedule) all other factors that may affect

the relationship do not change, or are held

constant. Thus it isolates the relationship ofthe price and quantity demanded. The same

is true for the supply schedule.

3.Supply and Demand Framework of Health Eco (1)

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