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Chapter 1: Basic Economics Tools

Chapter 1: Basic Economics Tools. Relevance of health economics Can economics be applied to health? How is health different from other goods?. Relevance of health economics. Health Expenditures account for 15% of total U.S. GDP U.S. share of GDP is twice that of U.K.

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Chapter 1: Basic Economics Tools

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  1. Chapter 1: Basic Economics Tools Relevance of health economics Can economics be applied to health? How is health different from other goods? Health Economics

  2. Relevance of health economics • Health Expenditures account for 15% of total U.S. GDP • U.S. share of GDP is twice that of U.K. • Are we spending too much? • Is U.K. not spending enough? Health Economics

  3. The “Health Care Crisis”What is it? • NHE inflation? • Lack of Access? • Quality of Care? • Shortage of Health Care Providers? Health Economics

  4. Economics Applied to Health • Scarce Resources • Incentives, Constraints, and Rationality • Marginal Analysis • Production Theory • Consumer Theory • Supply and Demand Health Economics

  5. So, how is Health Care different? Health Economics

  6. What We Know • There are procedures which are highly variable across relatively small areas. • The procedures are associated with high degree of uncertainty. • Coinsurance affects the demand for medical services. • Health Care is a normal good. • Tax subsidies matter. • HMO’s have NOT had lower rates of inflation. Health Economics

  7. What We Don’t Know • The “right” amount of Health Care. • Is medical care a luxury good? • By HOW MUCH do subsidies matter? • How does the supply of physicians affect the demand facing each individual physician? Health Economics

  8. Decisions, Decisions You have a splitting headache!! • There is a 20% probability that the prescribed painkiller will relieve your headache. • The cost of the appropriate dosage is $7.50. • Headache relief provides you with $30 of actual benefits. Do you buy the painkiller? Why or why not? Health Economics

  9. Which would you prefer? 1970 health care at 1970 prices? or 2006 health care at 2006 prices? Health Economics

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