Introduction to Health
Economics
By
Mr. Afaha John
Department of Economics
Introduction to Health Economics (1/2)
• Health Economics applies economic theories
to health and healthcare.
• It focuses on how resources are allocated in
the health sector.
• Example: How should a government allocate
its health budget between infectious disease
control and maternal health?
Introduction to Health Economics (2/2)
• Health economics helps answer:
• - What healthcare services should be
provided?
• - Who should receive them?
• - How should they be financed?
• Example: The debate on public vs. private
healthcare provision.
Key Concepts in Health Economics
• Scarcity & Choice: Resources are limited;
choices must be made.
• Opportunity Cost: The value of the next best
alternative forgone.
• Efficiency: Maximizing outputs from inputs.
• Equity: Fair distribution of resources.
• Example: Choosing between building a hospital
or providing free vaccinations.
Purpose of Health Economics
• 1. Improve resource allocation in healthcare.
• 2. Promote efficiency and equity in health
systems.
• 3. Inform health policy and decision-making.
• Example: Using cost-benefit analysis to
evaluate health interventions.
Scope of Health Economics (1/2)
• Health economics covers:
• - Demand and supply of healthcare
• - Health insurance and financing
• - Economic evaluation of healthcare
interventions
• Example: How health insurance affects
healthcare demand.
Scope of Health Economics (2/2)
• - Public health economics
• - Health technology assessment
• - Behavioral health economics
• Example: Evaluating cost-effectiveness of a
new vaccine.
Characteristics of Health Economics (1/2)
• 1. Uncertainty in health outcomes
• 2. Information asymmetry between providers
and patients
• 3. Presence of externalities (e.g., herd
immunity)
• Example: Difficulty predicting treatment
success.
Characteristics of Health Economics (2/2)
• 4. Government and insurance involvement
• 5. Ethical considerations and equity concerns
• Example: Public subsidy for anti-retroviral
drugs.
Applications of Health Economics
• - Evaluating health policies (e.g., national
health insurance)
• - Resource allocation decisions
• - Designing insurance schemes
• - Prioritizing public health interventions
• Example: Determining the most cost-effective
malaria prevention method.
Review Questions (with Answers)
• 1. What is health economics?
• A: The study of how scarce resources are allocated in health.
• 2. What is opportunity cost?
• A: The value of the next best alternative forgone.
• 3. Mention two scopes of health economics.
• A: Health financing and economic evaluation.
• 4. What is equity in health?
• A: Fair distribution of health resources.
• 5. What causes information asymmetry?
• A: Unequal knowledge between patients and providers.
Discussion Questions (with Guide Answers)
• 1. Should healthcare be free for all?
• A: Consider efficiency, cost, and equity.
• 2. How do economic evaluations help
policymakers?
• A: Inform priority-setting.
• 3. Is public or private healthcare more efficient?
• A: Depends on context.
• 4. What role should government play in health?
• A: Financing, regulation, equity.
• 5. Should vaccines be subsidized?
Summary
• - Health economics integrates economics into
health decision-making.
• - Key concepts include scarcity, choice, and
opportunity cost.
• - It has wide applications in policy, finance, and
evaluation.
• Understanding these concepts helps improve
healthcare systems.
References
• Folland, S., Goodman, A. C., & Stano, M.
(2020). The Economics of Health and Health
Care. 8th Edition.
• Clewar, A. M. (2018). Health Economics:
Principles and Practice.
• Phelps, C. E. (2017). Health Economics. 6th
Edition.
• WHO Reports and Country Health Profiles.
Thank You!
• Department of Economics
• Questions & Comments Welcome.
