A Micro Perspectives Of Health Economics Economics Essay

This curve represents the packages that would be demanded at different monetary values for good

The undermentioned graph shows how the monetary value curve offer represents the optimum picks as the monetary value of good 1 alteration, and the incline of the budget line represents the rate at which one can merchandise one good for another at market monetary values

Fix P2 = 1 and m = 3 ( we hold p2 and income fixed )

( Example 1 )

If an person faced alterations in the monetary value of medical attention this will impact his demands for X1 or X2, and likely both. An addition in the monetary value of services pivots the budget line inward in ( x1, x2 ) -space, necessitating a decrease in ingestion of at least one of the two goods. If the medical attention usage is non antiphonal to monetary value alterations. In this instance, an addition in the monetary value of medical attention services leads to a decrease in ingestion of non-medical-care services.

( Example 2 )

The monetary value offer curve besides explain for us the consumer behaviour for perfect replacements, for illustration if we took two nomadic operators as an illustration, if operator 1 lessening its monetary values, the consumer will increase the demand on its services more and the demand on operator 2 will be decreased. Because most of consumers will take one operator, so the monetary value here is extremely elastic.

Welfare possibility frontier:

It represents the sum of wellness and ingestion that can be consumed by single to acquire the best possible wellness with a given wellness production map and budget restraint, which both will impact his behaviour

The undermentioned graph indicates all combinations of wellness inputs and ingestion for a given budget restraint and the wellness production:

( Example 1 )

We can mensurate the consequence of income alteration on wellness, lets assume the income autumn from $ 60,000 to $ 30,000, this will do an inward displacement of the budget restraints ensuing in new public assistance possibility frontier, it ‘s obvious that the lower income means the wellness and the ingestion for single are reduced.

( Example 2 )

We can cipher the consequence of involvement rate on wellness, so if the monetary value of a unit wellness input decreased this addition the use of wellness inputs, so an betterment in the person ‘s wellness position. So if the authorities decreased the monetary values of of import goods such as milk, medical specialty, it will take to an betterment in the wellness.


It ‘s a pattern to measure undertakings by ciphering the present value of the benefits and costs which will originate in the hereafter. The result of this analysis is determined by sing different steps such as the buying power of the currency, involvement rate, future income hazard.

A Krona in the hereafter is less valuable than a Krona today, the present value of any sum in the hereafter is the sum that would be needed today, given available involvement rates, to bring forth that future sum. So, if you are traveling to be paid X Krona in T old ages and the involvement rate is r, so the present value of that payment is

Present Value = X/ ( 1 + R ) Thymine

In general, people prefer to acquire partial short-run benefits instead than full long-run benefits ; furthermore they prefer long-run costs instead than short-run costs.

( Example 1 )

The thought of present value has several utilizations. Take an illustration if you won a one million-dollar, these awards are normally paid out over multiple payments, $ 50,000 a twelvemonth for 20 old ages. By using the predating expression for each of the 20 payments and adding up the consequence, we will happen that the one million-dollar award, discounted at an involvement rate of 5 per centum, has a present value of merely $ 623,000.

( Example 2 )

Another illustration on wellness, we will take the R & A ; D of new medical specialty for diabetes, which normally take long clip, so how the pharmaceutical companies can measure this undertaking.

First clip investing cost = $ 200 million

Annually Cost = $ 8 million

Expected Gross saless upon launch = $ 100 million

We will see the R & A ; D clip is 5 old ages which normally is longer than that, but merely for the illustration intent, and the price reduction rate is 5 %

The following tabular array shows how we can cipher the present cost/benefit:


Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

Present value









Gross saless








* Valuess in $ Million

So we can see that this undertaking will profitable for the pharmaceutical company.

Deadweight loss:

It is the net loss in consumers surplus and manufacturers surplus due to revenue enhancement or monopoly inefficiency.

The undermentioned figure shows the measure sum sold at monetary value with revenue enhancement and measure sum sold at monetary value without revenue enhancement:

P1: Buyers pay at this monetary value

P2: Monetary value without revenue enhancement

P3: Manufacturers receive this monetary value

Q1: The measure sum at monetary value without revenue enhancement

Q2: The measure sum at monetary value with revenue enhancement

Deadweight loss = C +E

Consumers surplus reduced by C+B

Manufacturers surplus reduced by E+D

Tax revenue= B+D

And the deadweight loss besides happens when a monopolizer charges a monetary value higher than the fringy cost, and that ‘s produce an efficient sum of end product.

( Example 1 )

Many authoritiess implement excess revenue enhancements on imported goods to protect the local makers of the same good, for illustration the excess revenue enhancement on imported apparels, this will ensue in loss for the consumers and manufacturers, while the authorities who will derive a higher revenue enhancement gross, the deadweight loss is the value of the end product that is non sold due to the presence of the revenue enhancement.

( Example 2 )

An illustration on wellness, the patent of new drugs gives the pharmaceutical company a monopoly power, and this patent is for 15 old ages, so during this period there will be deadweight loss, because the company will set the optimum monetary value and many patients will hold no other pick. However this patent system helps the pharmaceutical companies to put more on the R & A ; D and to bring forth more monopoly power, and this what go on why big pharmaceutical companies become larger and larger such GSK and MSD.

Economies of graduated table:

Decreasing the mean cost of the produced unit by increasing the produced measures, some goods can be produced with lower cost if they produced in larger measures.

The undermentioned graph shows the how the manufacturer cut down the mean entire cost as the measures increase up to specific point, so there will be no alteration in the ATC, until they reach a point where the ATC back to increase which called diseconomies of graduated table.

( Example 1 )

A manufacturer of medical specialty, can buy the natural stuff with lower monetary values if addition the purchased sum but up to certain sum. So when he starts the production, the cost of 1 unit will be decreased. The tabular array below illustrates more:

Natural Material ( kilogram )







Cost per 1 kilogram ( $ )







Entire cost of natural stuff







Number of produced unit







Average Entire cost ( Raw Material + Operation )







( Example 2 )

a manufacturer in a little state can acquire the benefit of international trading understanding, which allow him to sell his merchandise to a larger graduated table of consumers so the mean entire cost of his good will decreased, and the fringy net income will increase.

Question 2:

Grossman ‘s theoretical account considers wellness as a lasting capital stock, which is measured as both ingestion and investing good. This wellness capital depreciates with age, on other manus can be increased by investing. The undermentioned equation represent this premise:

Net investment=gross investing – depreciation

Ht+1-H t=It-I?tHt

H: Health capital

T: Time

I: Investing

I?tHt: Depreciation.

The undermentioned factors have impact on Grossman ‘s investing theoretical account of wellness:

Age: The depreciation rate of the wellness stock additions with age, so acquiring older agencies less wellness stocks. The theoretical account besides predicts that older people to hold more ill clip, to devour more medical attention and give more clip to investing in wellness than younger people. Based on the above graph, the depreciation rate addition from Do to DB to DC, so the wellness stock lessening.

Wagess rate ( Income ) : an addition in the pay rate displacements the MEI to the right MEI ‘ , so the demand for wellness capitals rises from HO to Ha, the demand of medical attention besides rises with the pay as gross investing additions.

Education: Increased instruction will increase the wellness production efficiency, which leads to more wellness stocks.

I. Higher involvement rate will ensue in less investing and less income, so it will diminish the wellness stocks.

two. Implementing high engineerings could take to unemployment which means lessening is the income ensuing in less wellness stocks.

three. If we are unsure about the hereafter investing this may impact the theoretical account in two different ways:

First: an addition in the investing at present will increase the wellness stocks in the hereafter, so if this will increase the productiveness, the MEI displacements to the right.

Second: an addition in the investing at present will increase the wellness stocks in the hereafter, so if this will diminish the productiveness, the MEI displacements to the left.

Grossman ‘s theoretical account can be used to analyze the consequence of poorness on wellness or how a lessening in the income will impact the wellness position of a household, and besides the theoretical account can assist us to warrant how child labour will has an consequence on instruction and finally on wellness.

The strengths of this theoretical account that it helps us to measure the wellness as a capital good and we can cipher it by sing age, income and instruction. However the failing of this theoretical account is that persons ‘ wellness varies in the rate of depreciation, furthermore the benefits of wellness may change from individual to another 1. And this theoretical account is so simple and it should see many other variables like gender.

Question 3:

If a manufacturer operates in monopoly markets and wants to maximise its net income, it should bring forth a specific figure of units where the fringy gross equals the fringy cost ( MR = MC ) , lets assume a pharmaceutical company with a changeless fringy cost of $ 12, and the company decided to maximise its net income, the undermentioned tabular arraies shows the demanded measures at every monetary value:

Measures ( end product )

Price $

Entire gross

Fringy gross




































After ciphering the fringy gross at different measures, we can see that if the company produce more than 5 units, the fringy gross will be below the fringy cost, and if it produce less than 5 units, the fringy gross will be higher than the fringy cost, and these both conditions will ensue in less net income, so the maximal net income will happen at 5 units. , where MR=MC.

The undermentioned graph shows the above tabular array:

The monopolizer ca n’t maximise the net income if the demand is inelastic, because it will give negative fringy gross, so they could diminish the end product and increase the monetary value.

The manufacturer will acquire the advantage of monetary value favoritism to increase net income, so he will increase the monetary value of its merchandises in Europe because it has higher income and less elastic demand particularly for the pharmaceuticals where there is an insurance, while for Latin America he will diminish the monetary value to increase the demand as this states may hold more elastic demand.

The undermentioned graph shows how the net income will be different through monetary value favoritism, the blue/yellow lines represent selling the merchandise in Europe ( EU ) , and the red/green lines represent selling the merchandise in Latin America ( LA ) .

P/EU: The net income in EU

P/LA: The net income in LA

Question 4:

Study Purpose:

Alcohol ingestion is one the most of import issues that authoritiess focus on it, because it has economical and negative wellness consequence on society, so authoritiess over the universe attempt to command the consumers demand by using prohibition policies, excess revenue enhancements, ads ban and other ordinances.

There were many first-class surveies helped us to understand the market of intoxicant such as Cook and Moore ( 2000 ) , but they did n’t wholly explicate the monetary value consequence on intoxicant demand. However, Edward et Al ( 1994 ) showed the relation between intoxicant monetary values and consumer responses, the survey range was 18 states, and it includes three different type of intoxicant ( Wine, Beer, Spirits ) , but the determination of this survey had many conflicting and inconsistent consequences.

In Fogarty study the writer fills an of import spread by demoing us the existent of import factors that influence the consumer demand for intoxicant, and this will assist concerns to set their pricing policies, authoritiess to implement just revenue enhancements, and wellness professionals to diminish intoxicant ingestion harm through effectual schemes.

Study Design:

As general regulation of Demand, when the monetary value increases the measure decreases. While the “ own-price snap ” of a good is defined as the alteration per centum in measure divided by the per centum in monetary value, so the own-price snap will be negative, but in the paper it was represented in absolute value, which is one. The good will be inelastic If the own-price snap is less than one, and when it ‘s greater than one, the good will be elastic.

Fogarty started to sum up the available informations, and ended with a meta-regression analysis, which is an scrutiny for the relationship between different surveies and the degree of consequence observed in these surveies. The analysis tested several variables, drink market portion, degree of drink ingestion, beverage revenue enhancement rate, sample period, and sample length. Dummy variables were used to separate between: drink type, state, short tally, whether the survey was a multi-country survey, and whether or non the survey reported estimations for more than one drink type. The survey includes 150 beers, liquors, and vinos, ain monetary value snap point estimations, which have been drawn from surveies that consider demand responses to alterations in the monetary value of intoxicant in 18 different states.


An interesting determination of the survey is country-specific effects. It appears that consumer responses to alterations in the monetary value of alcoholic drinks do non change with state. Further, it appears possible to presume something about the own-price snap of a drink from per capita ingestion inside informations, explained by an opposite relationship between the market portion of a drink, as measured by per capita ethyl alcohol consumption, and own-price snap. Alcoholic beverages with a big market portion tend to hold a more inelastic demand than alcoholic drinks with a little market portion. Furthermore the comparative ethyl alcohol portion of a drink is of import factor when explicating fluctuations in consumer demand responses to alterations in the monetary value of intoxicant. As the meta-regression suggests that higher degrees of ingestion are associated with more inelastic demand, tendencies in the degree of intoxicant ingestion should besides be monitored. Should the degree of intoxicant ingestion autumn within a state, we would anticipate to see, in general, more elastic own-price snap estimations for alcoholic drinks.

Fogarty besides suggests that the demand of intoxicant will be more inelastic in the hereafter and farther surveies should analyze the relationship between illicit drugs and intoxicant, because it may hold strong consequence on the consumers ‘ behaviour, while other concealed factors may show besides.

Question 5:

Comparative analysis between Sweden, Saudi Arabia and Norway.

The Swedish wellness attention system is organized on three degrees: national, regional and local. The regional degree, through the county councils, together with cardinal authorities, forms the footing of the wellness attention system. The county councils plan the development and organisation of wellness attention harmonizing to the demands of their occupants. Their planning duty besides includes wellness services supplied by other suppliers, such as private practicians and doctors in occupational medical specialty.

In Saudi Arabia the wellness attention sector organized on the degree of parts there are four regions-Riyadh, Makkah, Eastern and Al Madinah-account for approximately 75 % of the wellness service proviso in the land.

In Norway, and before the twelvemonth 2002 Norway had the same reform as Sweden with three degrees of parliament, authorities, county councils and municipalities. The authorities own a few infirmaries while the most infirmaries where own by the county councils. After 2002 the authorities got duty of the infirmary, with outlook from the alveolar consonant attention which is still under the county councils and the municipalities. The municipalities have the duties for the primary attention. Norway ‘s wellness attention system is after the reform divided into five geographical parts which consist of five regional wellness companies ‘ med infirmaries and subordinate companies. Every regional wellness company have duty for the population in the part acquire the proper attention. The regional wellness companies and the infirmaries are run by a board. The wellness companies are officially free to transport on the wellness attention, the authorities is govern Torahs and ordinance. The authorities is the proprietor of the infirmaries and thereby besides has the duty of quality of attention, policies and budgeting ( Statens Offentliga Utredningar, 2006 ) .


In Sweden, In 2002, Swedish wellness attention outgo was 9.2 % of GDP. Health attention outgo expressed in US $ PPP per capita was 2517 in 2003, somewhat higher than the EU15 norm of 2326. The Swedish wellness attention system is chiefly funded through revenue enhancement. Both county councils and municipalities have the right to impose relative income revenue enhancements on their several populations. In add-on to revenue enhancement gross, funding of wellness attention services is supplemented by province grants and user charges. The societal insurance system, managed by the Swedish Social Insurance Agency, provides fiscal security in instance of illness and disablement. No basic or indispensable wellness attention or drug bundle is defined within Swedish wellness attention.

In Saudi Arabia, the following wellness economic indexs describe the state wellness state of affairs:


Unit of measurement


Healthcare Expenditure, Total ( Absolute )

US Dollar ( Millions )


Healthcare Expenditure, Total ( Growth )



Healthcare Expenditure, Total ( Per Capita )

US Dollars


Healthcare Expenditure, % of GDP



Entire infirmaries


Number of beds

000 ‘s


The wellness insurance reforms undertaken by the Saudi authorities in 2006 and in the procedure of execution mean that ample chances are available to insurance companies and re-insurers licensed in the land.

In Norway,


Value ( 2005 )

General authorities outgo on wellness as per centum of entire outgo on wellness


General authorities outgo on wellness as per centum of entire authorities outgo


Out-of-pocket outgo as per centum of private outgo of wellness


Private outgo on wellness as per centum of entire outgo on wellness


Per capita authorities outgo on wellness at mean exchange rate ( US $ )


Per capita entire outgo on wellness at mean exchange rate ( US $ )


Social security outgo on wellness as per centum of general authorities outgo on wellness


Entire outgo on wellness as per centum of gross domestic merchandise


Public wellness services in Norway are financed by revenue enhancement and are designed to be every bit accessible to all occupants, irrespective of societal or economic position. Patients in Norway have a legal right to wellness attention. The Patients Rights Act guarantees the patients ‘ rights to care and regulates the relationship between the patient and the wellness service. The costs for wellness services is covered chiefly by the province, but for some wellness services the person is required to pay a portion of the cost ( Helsedirektoratet ( degree Celsius ) , 2010 ) . The purpose of this co-payment is to cut down the growing of province costs, and to utilize this part to develop wellness services. When the person reaches a certain sum he/she gets a “ freecard ” , which means that you do n’t hold to pay more the current twelvemonth. This to protect the person from dearly-won wellness disbursals.


In Sweden, The wellness position of the Swedish population is one of the best in the universe. The chief strengths of the Swedish wellness attention system include a proviso of wellness attention services for all based on demand, democratic control and local answerability, control over entire outgos and effectual direction of clinical activities.

In Saudi Arabia, It ‘s considered as of the best wellness attention system in the in-between east part, but there are still many bold stairss should be taken, the authorities is taking a major reforms, but the force per unit area of the new immigrant workers, put burden on the system.

ItA?s been shown that there is important societal differences in wellness in Norway, and this regardless of instruction, income or business as a step of societal economic position ( Social- og Helsedirektoratet, 2005 ) . Universal public assistance actions have contributed to the addition of mean life anticipation and cut down unwellness in all societal categories. Surveies of difference in people self-reported wellness have shown that there are larger differences in wellness in Norway than in mean Western Europe ( Kleinman, 2002 ) . When it comes to absolute differences in wellness, societal differences in other states seem to be smaller.