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https://twitter.com/KeystoneHPSR
Building the HPSR Community Building HPSR Capacity
KEYSTONE
Inaugural KEYSTONE Course on Health Policy and Systems Research 2015
Economic Analysis in HPSRSession 1
Basic Principles of Health Economics
Basic Principles of Health Economics
KEYSTONE HPSR Course25 February 2015
Economic Analysis in HPSRSession 1
Session Outline
• Role of Economics in Health
• Demand for Health Services
• Production and Supply of Health Services
• Overview of Market Models
• Group Work
Economics in the Health Sector
• Choice of using available resources for production and distribution of health services
• Scarcity of resources makes these choices even harder, particularly in LMICs
• How does the society make this choice? Market or government?
Economics in the Health Sector
• Trade-off between efficiency and equityAchievement of better health OR fairer
distribution of health
• How does economics help policy makers to decide which is the best choice? Tools of economic evaluation
Factors of Demand
• Price of good• Price of substitute goods• Price of complementary
goods• Income• Tastes
How do consumers of health services express their preferences through their ability and willingness to pay?
Price
Quantity demanded
Is Demand for Health Care Different?
Yes and No
How is Demand for Health Care Different?
• Information asymmetry• Presence of “other parties” i.e. insurance
companies• Consumption of health services with respect
to life cycle • Severe illness and decisions of life and death• Do we really enjoy health services?
How is Demand for Health Care not Different?
• Not all health services are for severe illness but also needed for improving quality of life
• Many health services are “Normal” goods: quantity demanded increases with reduction in price
Why is it Important to Understand Demand?
• Predict likely changes in behaviors and reactionsWhat happens with introduction of user fees?
• Understand consumers’ value for servicesWhich services should be provided using scarce
resources?
Elasticity of Demand
• Price elasticity: measure of how much demand responds proportionately to changes in prices
• Income elasticity: measure of how much demand responds proportionately to changes in income
Efficiency in Production
• Technical efficiencyProducing most output from a set of inputs, or producing a
set amount of output using the fewest inputs
• Economic efficiency: Producing most output for a given cost, or producing a set
amount of output at the lowest possible cost.
• Allocative efficiency: One allocation is better than another if at least one person
is better off under the first allocation and no-one is worse off.
Factors of Production
• Technically skilled staff• Semi-skilled staff• Infrastructure• Equipment• Drugs and consumables• Energy• Caring and interpersonal skills• Teamwork, motivation
How Do We Choose Which Factors to Use?
5
Bicycle weeks
Personweeks
10
10
0
5 No. of children immunized =1000
Y Axis: 1 unit of capital= 1 bicycle in working order for one week
X Axis: 1 unit of labour = 1 person working for one week
Isoquant: represents the possible combinations of units of labour and capital that can be used to immunize 1,000 children
• Marginal Rate of Technical Substitution measures the average number of units of bicycles which can be substituted for an additional unit of staff in order to produce 1000 immunized children
Supply of Health Services
• We need a technically efficient combination of inputs that also minimizes cost of production
• Understanding relationship of cost and outputs helps to explain how services are supplied
Price
Quantity supplied
Markets
• A market brings together the demand for goods from consumers and the supply of those goods from suppliers.
• Consumers will want to buy more if the price is lower, but suppliers will want to sell more if the price is higher.
• Markets help to decide what to produce and how to produce it.
Market Equilibrium
Different Market Models
• Perfect competition: many small sellers and many buyers, a homogenous product and everyone is a price-taker
• Pure monopoly: only one supplier
• In between the extremes: monopolistic competition, oligopoly
Essential Conditions for Perfect Markets
• Perfect information across buyers and sellers
– Rational buyers and sellers
• Large number of buyers and sellers
• Homogeneity of product
• Free entry and exit for all players
Discussions in Group
• Topic 1: What are the demand and supply-side factors which influence utilization of institutional delivery in India? Discuss from an economic perspective, how interventions under NRHM aim to address these factors?
• Topic 2: Why is there a shortage of health workers in India? Why are health workers often absent from their positions in rural areas? Discuss from an economic perspective, how interventions under NRHM aim to address these challenges?
Open Access PolicyKEYSTONE commits itself to the principle of open access to knowledge. In keeping with this, we strongly support open access and use of materials that we created for the course. While some of the material is in fact original, we have drawn from the large body of knowledge already available under open licenses that promote sharing and dissemination. In keeping with this spirit, we hereby provide all our materials (wherever they are already not copyrighted elsewhere as indicated) under Creative Commons Attribution-NonCommercial 4.0 International License. To view a copy of this license visit http://creativecommons.org/licenses/by-nc/4.0/ This work is ‘Open Access,’ published under a creative commons license which means that you are free to copy, distribute, display, and use the materials as long as you clearly attribute the work to the KEYSTONE course (suggested attribution: Copyright KEYSTONE Health Policy & Systems Research Initiative, Public Health Foundation of India and KEYSTONE Partners, 2015), that you do not use this work for any commercial gain in any form and that you in no way alter, transform or build on the work outside of its use in normal academic scholarship without express permission of the author and the publisher of this volume. Furthermore, for any reuse or distribution, you must make clear to others the license terms of this work. This means that you can:
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