Health Economics - Prelims

7/28/2019 Health Economics - Prelims

http://slidepdf.com/reader/full/health-economics-prelims 1/70

Prepared by:

Lucky P. Roaquin, RN, MAN



After an hour, the students will be able:

(COGNITIVE DOMAIN)

To define the meaning of economics in termsof health and nursing profession

To differentiate the concepts of economicsappertains to health care industry

To describe the benefits of understatingeconomics in the nursing profession




(AFFECTIVE DOMAIN)

To established a well-rounded ideas andconcepts about the relationship of economicsand health care

To hasten knowledge on the different issues

governing economics status and health careindustry




(PSYCHOMOTOR DOMAIN)

To illustrate the existing nursing professionin terms of economic level

To provide a critically research on theeconomics of health care and nursing

profession in different scope settings orpractices



Preliminary Period

A. The Role of Economics in the Health Care

Industry

- The Organization of an Economic System

- The Health Care System



What is HEALTH?

According to WHO,Health is a state of complete physical, mental and social wellbeing and not merely the absence

of disease or infirmity.

According to Nightingale,Health as being well and using every power (resource) to the

fullest extent in living life.



Physical Health

The overall condition of an individual inside

and outside the physical body. A person issaid to be physically fit if his body

functions according to the way it has beendesigned. Our body can compensate for

defects through regular exercise, properdiet and nutrition, and proper rest.



Mental Health

Pertains to an individual’s emotional andpsychological wellbeing. One way to thinkabout mental health is by looking at how

effectively and successfully a person

functions.

Signs of mental health include feelingcapable and competent, being able to

handle normal levels of stress, maintainingsatisfying relationships, leading an

independent life, and “bouncing back” or

recovering rom different situatons.



Social Health

Concerned with human beings and their

relation to one another. The concept of social health is given less importance

compared to physical and mental healthbecause social health may encompass the

characteristics of a society and not just thatof an individual.

According to Russell (1973), a society ishealthy when there is equal opportunity for

all and access by all to the goods andservices essential to full functioning as a

citizen.

There are evidences showing that thosewho are well integrated into their

communities tend to live longer andrecover faster from disease. Conversely,

social isolation has been shown to be a risk

factor for illness.



Determinants of health aid in thecreation of health programs and publicpolicies that explicitly address the rootcauses of ill health, health inequalitiesand the need of those who are affected

by poverty and social disadvantages.

According to Wilkinson & Marmot

(2003), it is concerned with the healthimplications of economic and social

policies, as well as with the benefits thatinvesting in health policies can bring.



Biology & Genetic Endowment

Biological form and function arepassed on to the next generation bygenes, which is the primary units of inheritance. Individual genetic traits

have different susceptible todiseases.

Not only because of biologicalinheritance that people experiencehealth problems later in life but dueto a vicious cycle of bad habits that

are being passed on from generationto generation.



Culture

Membership in ethnic or culturalgroups influences the health of individuals and populations. Beliefsand values are two components of

culture that may have great effect onpeople’s health.

Beliefs are the results of the

experiences about the physical,biological, and social world in which aperson lives. Values are any aspectsof object, a thought, or an act that

are inherently desirable orundesirable.



Education

Health education increases with anindividual’s level of education, or what

we call health literacy. As the level of education increases, the ability of theperson to read, understand, and use

health care information to make

informed choices, reduce health risks,and increase quality of life increase as

well.



Employment & Working Conditions

People who have better control overtheir work have better health. Safe

workplaces also contribute to betterhealth. Workplace social support,

measured by the number and quality of interactions with co-workers, is

associated with better health. In general,having a job is better for health than

having no job.



Gender

Many of such differences are sociallyconstructed. They arise from differencesin traits, attitudes, values, behaviors and

roles that society ascribes to men and

women.



Health Services

Health services, particularly those designedto maintain and promote health and preventdisease, contribute to health. Services that

educate people about health risks andhealthy choices support healthy living.Those that encourage and assist in the

adoption of healthy living practices andsupport independent living also make a

contribution to health



Income & Social Status

Poverty denies people access to decenthousing, education, transport and other

factors vital to full participation in life.Because of poverty, health is compromised

indirectly by living in neighborhoodsblighted by concentrations of deprivation,

high unemployment, low educationalattainment, poor quality housing, limited

access to services and a poor qualityenvironment.



Personal Health Practices

Healthy personal practices and lifestyles arekey influences on health. Regular exercises

has been shown to reduce the risk of cardiovascular diseases, diabetes, obesity,back ailments, and cancer. Smoking is the

leading cause of cancer and a major riskfactor for cardiovascular diseases.



Physical Environment

Where we live affects our health andchances of living flourishing lives. The daily

conditions in which people live have astrong influence on health equity. Access to

quality housing and clean water andsanitation are human rights



Social Environment & Support

The social environment and its values andnorms influence the health of individualsand populations. Support from families,

friends, and communities is associated withbetter health. Family status affects health

primarily because it affects income andemployment.



1. What do you mean by social health? Cite asituation where social health is manifested.

2. Speaking of social support, in what wayscan we contribute to a person’s health andhelp improve his wellbeing?

3. In what ways can education and trainingcontribute to people’s health?



What is Economics?

Economics is a systematic way of thinking aboutthe use of resources. According to Samuelson

(1992), economics as “the study of how people andsociety end up choosing, with or without the use of money, to employ scarce productive resources that

could have alternative uses, to produce variouscommodities and distribute them for consumption,now or in the future, among various persons and

groups in society. It analyses the costs and benefitsof improving patterns of resource allocation.”



Scarce resources that are available for producing goods andservices are classified into four categories:

Land, which refers to all natural resources such as landfarm, rivers, lakes, waterfalls, trees, oil, minerals,

Labor, which refers to manpower resources and expertise

Capital, which refers to man-made materials that can beutilized for further production of other goods and services

Entrepreneurship, which refers to human skills and talentsthat are used to administer and manage the business

enterprise



How about in Health Economics?

Same scarce resources are used in theproduction of health care goods and

services. Because business and healtheconomics are both concerned with the

utilization of scarce resources for

production, it is necessary for society todevelop an economic system that willrespond to the needs of its members.



What is an Economic System?

Economic system is an organizedeconomic institution that determinesthe manner in which scarce resources

are utilized to satisfy human wants.



HOUSEHOLD BUSINESS

Goods &Services

ConsumptionExpenditure

Rent, Wage,Interest, etc

Land, Labor,

Capital



4 Fundamental Functions

What to produce

How to produce

How much toproduce

For whom toproduce



Types of Economic System

A distinction between differenttypes of economic system is

based on who owns the factors of production and the methods used

to coordinate and directeconomic activity.



Types of Economic System



Market System or Capitalism

• The factors and conducts of production are

carried out by privately owned enterprises.

Individuals are free to buy, sell, or lease

property

Private Property

Ownership

• The use of markets and prices to

coordinate and direct economic activity to

maximize profit and coordinates economic

activity where buyers and sellers come

Existence of

Pricing Process

• The presence of competition makes

individuals and businesses enhance their

economic welfare

Presence of

Competition




•Conditions of Perfect Competition:

• A large number of buyers and sellers

• No barriers to entry

• No product differentiation or brand names

• Assumption of self-interest

• No externalities or spillover effects in

production or consumption

• No risk or uncertainty

• No monopolizing of producers

Presence of

Competition




•The desire of sellers to attain economic

advantage through sale of their goods and

services. The desire to maximize profit also

intensifies competition, which will encourage

people to develop and introduce new methods

of production

Profit

Motive



Command System or Socialism

The government owns most of propertyresources and major factors of production.

The government directly conducts,regulates and controls the economicactivity through its central economicplanning authority. The government

advocates abandonment of profit motive asan incentive to production and substitutes

it with production for use.



1. What type of economic system do you think isfitting and appropriate to us considering ourculture, traditions and practices?

2. What steps do you consider effective in determining

the products or services society should practice?

3. What do you think is the appropriate and fairmethod of distribution that can satisfy humanwants?

4. What advantages do you enjoy in capitalism thatyou may not be able to enjoy under socialism?



Contentment and Human Manners

Economics perceptions or main beliefssuppose that the performance of people is

normal. This means that when people takeachievement, they do so because they areenhanced off or more fulfilled after

captivating that deed – or at least anticipateto be. On the contrary, to deliberately do a

little that decreases contentment isunreasonable.

Materialistic Goal – be obliged to be formedall the way through the employ of assets.This comprises both merchandises, which

have substantial essence, and services, whichare indefinable or contain no bodily essence.To be absolutely accurate, an acquisitive goal

is the contentment one anticipates to take

delivery of when making exercise of a goodor service, not the high-quality or serviceitself.

Non-Materialistic Goals – contain the feelingof affection for of others, acquaintance, and

devout comfort.



Microeconomics

This deals with the profitable performance of entity components in economy. Such elementsconsists of customers, companies, laborers,

savers, shareholders, and the like.Microeconomic impressions cover such issues as

(1) what involve the value of an entity good or

service; (2) what resolves the production stage of a company; and (3) how the levy price have an

effect on the distinctive shareholder in reserves.

Economics deals for the nearly all division withthe money-oriented aims of goods and services.They are created with the possessions of effort,

assets, ordinary possessions, and freeenterprise. Yearnings for goods and services are

unrestricted, at the same time as assets areinadequate.

Populace takes full advantage of their cost-effective comfort by apportioning or by means of resources competently. This is accomplished byusing cost-benefit investigation, guaranteeingthat reserve users have more to achieve than

they have to mislay or give up.

Miscalculations in resolutions making take placebecause of (1) unacceptable calculate of charges

and assistances; (2) breakdown to regard aslong-run consequences; (3) negative response to

regard as the effects on others; and (4)

somebody as well bearing much of the costs of apronouncement.



Money & Banking

It is considered that survival cost-cutting

measure can function devoid of capital; acontemporary financial system is to accept as

true that cannot situate exclusive of cash.Acquisition of knowledge about money is andhow it is of assistance is important in order toadvance the economic predicament caused by

insufficiency.



The Theory of Money

Money plays a vital function in specialty andsource of revenue standards. Every individual

concentrates in generating a quantity of good orservice in arrange to amplify the competence of reserve use. Interest, in turn, endorses elevatedsource of revenue standards. But this guide to

human being authority fabricating immeasurably

extra of a manufactured gods than each require– but not having not anything else is desirable.

Accordingly, specialization energy switches overtheir manufactured goods.

Two methods of dealing: (1) Barter – refers to ascheme in which one individual gives a high-

quality service, or reserve to another in replacefor a number of other good, service, or reserve;(2) double coincidence wants – denote that every

individual has what the supplementary self-needs and desires what the other individual has.

In an exchange market, populace accumulatespurchasing authority in the things they

formulate. But in a modern economy, peoplehoard purchasing supremacy in the funds theyreceive by generating things. Currency, is the

illustration of purchasing control – the authoritypeople receive by producing things.



Purposes of Money

Accumulate of worth – as soon as you clasp onto capital you compromise the authority to

acquire goods and services at whatever timesyou desire

Average of swap over – money re-establishesone of the goods desirable for replace

Standard of rate – permit people to beacquainted with how much supplementary one

thing is significant than another thing.



Banking Structure

As soon as the economies were of the most part

restricted and diminutive, and individual whodesired to make use of money normally did so in

a straight line from an important person whohad saved noteworthy quantities of it in advance.

The mortgage amounted to a replace of purchasing money connecting an investor and a

borrower.

The involvedness' of our economy and theenlargement in the amount of credits to funding

outsized manufacturing and other venturesnecessitates the pooling of the savings of thousands of citizens. This pounding and

succeeding conceding of loans is accepted outby banks.

Banks fell into two categories: Commercial bank – is defined by ruling as a firm

that provides read-through financial credits and

makes profitable loans. Thrifts bank – includes savings bank (mutualsavings bank which is managed as cooperatives

that signify that the shareholders are the holders),savings and loans (intended to make available

credit to home buyers); and credit unification (acooperative created by constituents who labor in

the similar company or government bureau or fit into the similar combination.



How banks make money

Banks formulate capital. Not immediatelyearnings, but authentic, honest-to-goodness

money. In reality, banks prepared the majority of the money that survives nowadays. Such money

is promising for the reason that the bankingorganization, particularly for the reason of the

banks’ capability to make loans. Frequentlybanks formulate smaller amount of loans thanthey are permissible to put together with their

depositors’ money.

Excess reserves refers to this distinction amongwhat banks can let somebody borrow and what

they have loaned. Deposit multiplier refers to thequantity of times the currency deliver possibly

will develop if all surplus funds were provided.

Money is an end result of interest. As soon as weconcentrate on the employ of our possessions toamplify output, we require switching over goods

ad services with each other. Producing goodsand services give professionals the authority to

get hold of other goods and services all the waythrough swap over.



1. Explain further the concepts about bartersystem? Compare exchange of commoditiesusing the old (barter) system from new(currency) system.

2. State the significance of currency system inthe health care industry.

3. If barter system is applicable in our presenttime, will it be effective in the current healthcare industry?



What is Health Care?

Health care are activities that are undertaken

with the objective of restoring, preserving, orenhancing the physical and mental well-being of

people. These activities may be aimed at therelief of pain, the removal of disabilities, the

restoration of functions, the prevention of illnessand accidents or the postponement of death.

(Heshmat, 2001)

What is Health Care System?

A set of interrelated and independent parts thatform a complex whole and each of those partscan be viewed as a subsystem, hence, a health

care system can be described as the interrelatedways in which a given society organizes available

resources for the maintenance and improvementof the health of its people.



Economic Functions of Health Care System

Health care system has similar attributes withthat of economic system. Both are involved in theuse of scarce resources, the production of goods

and services, and its distribution among the

members of society.

The organization of health system simply meansthat health status of a nation is the result of the

interaction of three-factors:• Health sector

• The population• The health-related sectors

The term health sector is used to indicate thegroups of services or institutions in the

community and country that are concerned withthe health protection of the population.

The identification of the health sector in thecountry requires:

Recognition of the accepted role of the healthinstitutions and services based on legal,

political and or technical criteria A familiarity with the health sector

composition in terms of agencies dischargingresponsibilities for the health protection of the

population.

Given a society’s resources, the combination of quantity and quality of health care services mustbe chosen and produced. In health care system,the consumer and the physician determine this.

Often times, there is a trade-off between thetwo. This also happens because society choosesto provide higher quality of health care services,

which only a handful can benefit as it entailshigher cost. On the other hand, quality may becompromised at times so as to cater to more

people.

Functions of the Health Sector: Direct provision of health services covering the

aspects of promotion, prevention, diagnosisand treatment and medical rehabilitation. Development and provision of health

manpower, drugs and medical supplies, andfinancing support/schemes

Research and development Coordinating, controlling and directing

organizations and activities with otherfunctions



Marginal Benefit vs. Marginal Cost

The addition on theextra satisfaction that

you derive fromconsuming goods and

availing the services.

A measure of thechange in costs

associated withincreasing or

decreasing output byone, and is derived by

calculating the changein total costs for that

one unit.



Health Care Services Production & BestMethods to Use

Techniques in production are being decided

because even within a particular health deliverysystem, the combination of health care personnel

and equipment vary. In place of marginalbenefits on the consumer side, marginal

productivity of inputs will be used by providersto determine the cheapest method in providing a

service.

The health care provider will have to determinethe best combination of capital (machines, healthequipment and devices) and manpower

(personnel) at the lowest cost possible. Economicefficiency then is achieved if health care

providers will be able to minimize the cost of their services.



Economic Efficiency Concepts

Economic recession has been the cause of

evaluating the level of real resources available tohealth services. Two questions are being askedin determining resource utilization efficiency:• “Are limited resources used in the best ways

possible?” • “Is value for money achieved in their use?”

The concept of economic efficiency refers to theratio of output with use of a given input. The

economic efficiency of a particular productiveprocess is the ratio of the value of its productoutput to the value of the input resources. Thechoice of techniques depends upon the relative

prices or costs and the quantity of products toproduced. The aim of the firm is to produce ascheaply and efficiently as possible.



Health Care Distribution

In a market or capitalistic system, the decisions onhow to distribute the supply of commodities dependlargely on the price and income of the consumer. In

this system, nobody dictates how incomes andoutputs are to be distributed. The law of supply anddemand centers on the price of commodities and isintegral in determining the quantity supplied and

demanded by consumers. But unlike the capitalisticsystem, health care system primarily relies on the

quality of the commodity, not prices, in determiningthe quantity to be produced

In mixed-capitalist economic system like the US,many health care goods and services are

distributed by both the government and the

private market. When the private markets cannotprovide the health care needs of the people, the

government intervenes to fill it up. When aperson who is in dire need of medical treatment,

but does not have health insurance, he seekmedical care in any government-ownedhospitals. Hospitals run by the government get

their funds from people’s taxes.

In socialist and communist systems, thegovernment directly conducts, regulates

and controls not only the economicactivity but also the manner of providingthe health care needs of its people. Their

productive resources are allocatedaccording to the availability and need of people.

In the Philippines, only few individualshave health insurance coverage, majority

of the population has access to healthcare services on the basis of willingness

and ability to pay.



Significant Economic Health Care System IssuesThe usual role of price and income in the demand for

services does not apply to health services

The demand for curative services for non-life

threatening illness including alleviation of minorpains that is influenced strongly by the patient’s

income and price of the service. The demand for preventive health services appears

not to be influenced by the income and price. The

demands usually are low. On the other hand,health managers see these services as importantneed and hence engage in promotional activities

and prevention programs through communityeffort.

The consumer of health services does not determine

the amount, kind, and quality of what he purchases.In hospital, the patient does not determine if he is

willing to undergo a series of laboratoryexaminations or intervention, including operation. Itis the attending physician or any health personnel

who makes this decision and in a way, the ability of the patient to pay.

The economies of scale, which work inmanufacturing, do not work in hospital setting.

Large hospitals have more patients and higher dailyaverage cost per patient as opposed to smallhospitals with less patients. As the size of the

hospital increases, so does its range,comprehensiveness, and sophistication of services

Competition does not result in lowering the charges

for health services

Hospitals do not compete on a cost basis but in aservice and convenience basis. Physicians do not

decide where to send their patients on the basis of lower cost, but rather on the basis of the quality

and range of services available for diagnosing andtreating patients.

Marketing goal to maximize demands for services

apply only to preventive and advanced health

programs

To keep people healthy so that they will not needto be hospitalized. There is a high degree of selectivity in the admission of patients too

hospitals, and physicians are expected to limitsuch use to the minimum amount necessary to

assure satisfactory physiological result even if thepatient may be bothered.

Not all cost centers in a hospital make profit

Some hospitals never produce a net surplus of funds but continue to offer year after year services

needed in the community

Non-profit motive

In a hospital is true when the measurement of

success is not clear-cut and trustees may findthemselves in different position. Many trustees

regard the hospital as quasi-public institution andbelieve that when interests of the community come

into conflict with those of the hospital, thecommunity interests are primary and the hospitals,

do not strive for annual surplus in order to paydividends to stockholders.

External benefits

In health expenditures carry with them what canbe called external benefits, that is, the benefits of

expenditures accumulated not only to theindividual who makes them and community as awhole. Economists some cases, states that the

private marginal benefit from expenditure is lessthan the social insignificant advantage.

Health needs, wants, and effective demand

Generally taken as the basis of his right to receiveit, regardless of his ability to pay. While the

medical profession has always acknowledged anobligation to meet this needs that is an essential

part of it.

Complimentary nature of medical services, training,

and research

States that many developed countries, medicalservices are often offered jointly with medicaleducation and sometimes also with medicalresearch. Most authorities believe that byconducting a good educational program, a

hospital enhances the quality of care rendered.

Health as an item of consumption and investment

Resources devoted to health care represent insome part an investment in health. An investment

in health must measure its return in terms of indexes of health. The problem of determining the

return of the investment is complicated by

multiple causation which makes it impossible toattribute improvement in health to effect of the

health services.

Substitutability between labor and capital in the

health field

The ability of capital or more specifically machinesto replace very limited personnel services in health

field.

Differing requirement for labor and capital by

different health programs

In developing countries, the major causes of deathare parasitic and infectious in nature. Most of

these are vulnerable to existing preventivetechnology requiring less-skilled workers andordinary traditional diagnostic equipment. In

developed countries, the major health problemsare the chronic degenerative diseases, which

require more skilled manpower and moresophisticated diagnostic and curative equipment.



1. How does competition works in health care? Areprice and consumer income consideredimportant determinants in the purchase of health care services?

2. How do we arrive to a decision as to whathealth care good or service must be producedin the society?

3. As far as input factors are used in production,why are hospitals more labor intensive thancapital intensive?



4. How is distribution of health care servicesdone in health care system?

5. What is economic efficiency? How can

economic efficiency be attained?

6. How can be economic efficiency effective in

the present health care industry?



Scarce resources must be used as

efficiently as possible. To achieve thisgoal, an efficient information system isrequired to bring together the values of products with their production costs and

varying consumers and producers’decision.

The price system, as it indirectly ordirectly influences many health care and

health programs, is integral in thiseconomic analysis. Therefore, it is

important to consider the price systemmechanisms by examining the application

of supply and demand in health caresystem.



Demand as Applied to Health Care

Demand refers to various quantities of commodities buyers are willing to able to

buy at different alternative prices

In most markets, if the price of acommodity increases, the quantity

demanded of it will decrease. Conversely,if the price of a commodity decreases, the

quantity demanded of it will increase.



Demand for Medical Services

Demand refers to various quantities of commodities buyers are willing to able to

buy at different alternative prices

An inverse relationship exists between

the price and quantity demanded forphysician services. The individual demand

curve for physician services is slopingdownward; illustrating that quantity

demanded rises as the price of physicianservices drops.

In the demand curve, price represents perunit out-of-pocket expenses the consumer

incurs when purchasing medical servicesfrom the physician. It equals to the amountthe consumer must pay after the impact of third party payment has been taken into

account. If the visit to the physician is notcovered by a third party, the actual price of

the visit equals to the out-of-pocketexpense.

Another way to illustrate the inverserelationship between price and quantity

demanded for physician services is that of the substitution and income effects of a pricechange. According to the substitution effect,a decrease in the price of physician services

causes the consumer to substitute away fromthe relatively higher-priced medical goods,hence, the quantity demanded for physician

services increases as price decreases.

Based on income effect, a lower price alsoincreases the real consumer purchasing power.

The quantity demanded of physician servicesincreases when purchasing power increases.There is an inverse relationship between priceand quantity demanded because as price falls,the real income and quantity demanded rises.

Taken together, the substitution and incomeeffects indicate that the demanded for physician

services decreases as price increases.

1. Demand ShifterThe increase in real income causes the demand

for physician services to rise. The consumer iswilling to pay a higher price, thereby causing

the demand curve to shift to the right.

2. Complementary Medical ServicesRefers to two or more goods which are jointlyused for consumption purposes. Becausethese goods are consumed together, an

increase in the price of one good inversely

influences the demand for the other.

3. Substitute GoodsIt refers to two or more goods that are used tosatisfy the same wants and provide the samecharacteristics. The demand for one good is

directly to a change in the price of its

substitute good.

4. Time Cost Influence the Quantity Demandedfor Medical Services

Time cost includes the monetary cost such asbus fare or gasoline, plus opportunity cost of

time.

5. Health Insurance and Demand for Medical

ServicesUncertainty is a fact of life and the need forhealth care is difficult to predict. People facerisks every time they drive along the streetsor invest their money. One way to minimize

risks is to let firms shoulder the coststhrough insurance policies.

5. Health Insurance and Demand for Medical

Services

When people buy insurance, they voluntarilypurchase a certain minimal loss – theinsurance premium – to avoid future risk of a

larger loss. The expenses associated withmedical care is designed to provide

protection. The demand for health andmedical care is interrelated feature of health

insurance.

6. Moral Hazard

This can be defined as any change in behavior asa result of becoming insured. Usually, thechanges in the behavior that matter most arethose that increase the pure premium of the

insurance. Increasing premiums is the

workings of the private insurance systems toat least cover their cost.

7. Events of Various Types

A disaster may increase the quantity demanded

for intravenous fluid and tubing and bloodproducts. Factors shifting the demand curveoutward would increase consumers’ incomeor insurance coverage, reduced opportunity

cost, increases in the price of substitutes,decreases in the price of implements orevents that increase quantity demanded.



Supply as Applied to Health Care

Supply represents the quantity of a

product that producers are able to andwilling to sell at a specific price and timeperiod. The effect of price on the quantitysupplied is opposite to the effect of price

in the quantity demanded.



Supply Shifters

Cost

Represents the resources or inputs

required to produce a good or service.Cost is a very important supply-shifterbecause the cost of a particular level of output is the result of the quantities of

resources used to create it multiplied bytheir price.

a. Total cost (TC)

Is the overall costs entailed to produce agiven level of output. Total cost is

expected to increase as output increases.

b. Average cost (AC)

Represents the total costs of productionassociated with each unit of outputdivided by the quantity produced over the

same period of time.

AC = TC/Q Php333=Php5,000,000/15,000

c. Marginal Cost

Represents the change in costs associatedwith increasing or decreasing output by

one.

Studying costs is important because it canassist in decision-making by identifyingthose areas where we can exercise the

power of choice. In practice, someresources are already dedicated to

particular activities by past decisions, andsimilarly, present decisions will haveresource implications in the future.

Decisions are distinguished betweenshort-run and long-run periods.



Economies of Scale Concept

Economies of scale is a concept when thelong-run average cost declines and

output increases enabling the producer tomaximize profits or optimize its output. Itdepends primarily on the behavior of

costs and the volume of production. The

relationship between average cost andquantity of output will determine the

economies of scale or its scale of plant.

Short-run period refers to the time intervalwhen some factors are not adjustable in

amount. For instance, capital equipment,heavy machineries and buildings cannot beeasily replaced, bought or built overnight

without incurring losses. in short-run period,

fixed factors are given and the firm adjustsits operation by changing the variable

resources such as labor and raw materials.

In the long-run period, however, the firm canadjust all factors, hence, all costs are

variable.



Why Diseconomies Scale Occurs?

It happens when the firm becomes

inefficient in controlling and coordinatingoperations especially upon venturing inlarge-scale production. In a small size

plant, the management can easily identifyproblems and make efficient decisions.

In contrast to small-sized plants, big-sizedplants are harder to manage. As operation

become more complex, problems and decision-

making considerations become multifarious too.On a large scale production, the management

will find difficulty in collecting andunderstanding information for timely decision.

Problems such as communication andcoordination will also occur resulting toinefficiency and eventually, rising of average

cost.



Economies of Scale in Health Care

Economies of scale is a situation whichthe long-run average cost declines as

output increases output increases. Itrefers to the idea that the average costfalls as a medical firm gets physicallylarger due to specialization of health

professionals and increases in labor andcapital equipment or diagnostic

machines.



Economies of Scope in Health Care

“Economies of Scope” is a situation in

which a producer can jointly produce twoor more products to lessen the cost of

production than doing them separately.The product thus maximizes profit by

minimizing total cost.



Changes in Technology

Changes in technology may shift theamount of quantity supplied.



Demand & Supply Shifters in Competitive MarketsDemand Shifters

1. As income increases, the quantity demandedincreases.

2. As income increases, the amount of insurance coverage available increases.

3. As opportunity cost increases, the quantitydemanded increases.

4. As the price of substitute decreases, thequantity demanded for certain gooddecreases.

5. Events may increase or decrease the quantitydemanded.

Supply Shifters1. As population cost increases, the quantity

supplied for certain good decreases.2. As economies of scale or scope increases,

the quantity supplied increases.3. As technology improves, the quantity

supplied increases.4. Events may increase or decrease quantity

supplied.



Equilibrium of Demand and Supply

EquilibriumDefined as a state when there in no tendency for

further change. In the market, it is achievedwhen the supply equals the demand. Price andquantity o products will adjust until the point is

reached where producers and consumers greedto exchange a given quantity at a given price.

DisequilibriumOccurs when supply is not equal with demand. A

surplus represents market disequilibrium.

Surplus takes place when there is an excess inthe quantity supplied or a sudden drop in thequantity demanded. Surpluses occur when the

market price is higher than the equilibrium price

so that producers generate a quantity suppliedthat exceeds the quantity demanded. As a result,producers reduce the price of the product andincrease the quantity demanded to bring the

market into equilibrium.

ShortageRepresents market distribution when there is anexcess in the quantity demanded or a suddendrop in the quantity supplied. Shortage occurs

when the market price is lower than theequilibrium price, so that the quantity demanded

exceeds the quantity supplied. As a result, the

consumers are willing to pay a higher price forthe product. As its price increases, the quantity

supplied also increases, which brings the marketequilibrium.



1. What are the factors that determine thedemand for health care services? Discusseach factor.

2. What are the factors that determine thesupply for health care services?

3. What are the most important inputs inhealth care?



4. Give examples of substitute health caregoods and services and show how theyaffect demand.

5. What are the complementary goods andservices? What happens if the price of onewill rise?

Health Economics - Prelims

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Transcript of Health Economics - Prelims