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    ECONOMICSHealth Economics, having been developed as a

    distinct discipline of Economics in the 1980s, is arelatively new field. As the term, it is the

    application of economic principles to health.More specifically, it implies the use of economicmethods to improve health using the mostefficient interventions. Health economics

    contributes immensely to health planning. Fordeeper understanding of the concepts of healtheconomics it is best to understand health andeconomics separately.

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    EconomicsEconomics has been defined in differentways, Samuelson, an authority in

    economics, and the author of one of themost widely read and referred totextbooks in economics, has a drawn up alist of definitions:

    1. Economics is the study of those activitiesthat involve the production and exchange ofgoods

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    Economics is the science of choice. It studieshow people choose to use scarce or limited

    productive resources ( land, labor,equipment, and technical knowledge ), toproduce various commodities, and to

    distribute these goods to various membersof the society for their consumption.

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    Economics is the study of money, banking,capital, and wealth.

    Economics is the study of commerce amongnations. It helps explain why nations exportsome goods and import others, and analyzes

    the effects of putting economic barriers atnational frontiers.

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    DiscussionWe are facing economic problems such as increase

    prices of basic commodities, transportation fares, andother services particularly education and health care

    We are dealing with these present problems throughthe proper use of and allocation of available resourceswithout realizing that this process of prudent use ofresources is actually the key concept of economics.

    Therefore , we can define economics as the study ofproper allocation and efficient use of scarce resourcesto produce commodities for the satisfaction ofunlimited needs and wants of man.

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    Determine the proper allocation and efficient use ofhealth resources.

    All medical and n0n- medical goods and services willnot exist without the use of resources.

    Resources are scarce and the human needs and wantsare unlimited.

    It is essential for the society to make a decisive choicebased on its preferences.

    These choices are embedded in the basic economicproblems.

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    Characteristics of EconomicsEconomic resources will always be scarce

    and people will always struggle to work

    against scarcity. Even when resources are abundant, they will

    eventually become scarce because of the fact

    that more people use the same resources astime passes. There is scarcity of resourceswhen people want more of a certain goodthan what is available.

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    2. There is a universal objective of attainingthe maximum output out of a given input.

    Because of scarce resources that have alternativeuses, man has the ever present problem ofmaking choices to produce specific commoditiesfor distribution and consumption. His objectiveis to choose the process or produce thecommodity which will give the maximumbenefit from a given input.

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    Economic Resources Man has economic resources which he can use to produce

    commodities;

    1.Land Man s most important resource aside from himself is land.

    All that stems, grows, develops from land

    Hunting and fruit and vegetable gathering during the stoneage gave way to farming and domesticating animals

    Even the smallest piece of the land are use to produce themost no of crops and livestock through the most modernagricultural and farming methods.

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    2. Labor

    Human activity produced a multitude of outputs.

    Manual labor that has produced crops and livestockto a more advance rational thought which producedteachers, professionals, capitalist, andentrepreneurs.

    Human capital

    Specialization for proficient manpower inproducing certain good or service and hascontributed to a better production and distributionprocess.

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    3. Technology Output of human activity from the stone age to rational

    thought.

    Immensely affected the lives and future of peoples,improved the quality of life.

    Metal age to modern technology genetic engineeringand biotechnology.

    Health and medicine has definitely improved the qualityof life and life expectancy of man.

    Curing all diseases and controlling aging may becomepossible

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    Technology has had negative effects too eq. Weaponsof mass destruction, demise of millions and million oflives

    Worlds population may end with one stroke.

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    4. Capital Money, convenient medium of production and trade.

    Trading between individuals and nation ( international

    trade ) Has evolved from barter trade , to the use of shells, gold,

    silver, and other precious materials to do commerceamong nations.

    Different countries adopt different currencies withdifferent values and purchasing power relative to othercurrencies

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    Entrepreneur This refers to the people that are combining the other

    three ( 3 ) factors of production to create someproducts or services to sell. The economist regardentrepreneurs as specialist form of labor input. Thepayment for entrepreneur is profit.

    Capital interest

    Labor wage Land - rent

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    Components of Economics 1. Economics is about making choices. Choices can be

    on;

    What commodities to produce, For whom the commodities should be produced,

    How to best and most efficiently produce these goods,

    What is the best way to distribute the commodities,

    and How much of the commodities will be produced.

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    2. Economics is analyzing the different choices andtheir cost

    Remember that these choices will have cost. Differentalternative choices will have different correspondingcost.

    3. The choices and their costs will have an effect on

    the future of those who make these decisions, or to therecipients of the commodities.

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    Macroeconomics and

    Microeconomics Macroeconomics is the study of the functioning as a

    whole. Macro means big or grand.

    Macroeconomics studies, among other things: Interest rates and currency exchange rates;

    Trends in prices, output, wages, inflation,unemployment; and

    Government economic policies and taxation.

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    Microeconomics is the study of smaller and individualentities. It studies the behavior of industries,companies, and households. Micro means small or

    miniscule. Microeconomics studies among other things;

    How industries price the goods they produce anddistribute;

    How taxes affect peoples work effort, consumption,saving, and allocation; and

    How households allocate and use their financial andother resources.

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    Terms associated with

    Macroeconomics Gross National Product ( GNP )

    Gross Domestic Product ( GDP )

    Aggregate supply and aggregate demand

    Employment/ unemployment, wages

    Fiscal policy

    Government and taxation

    Foreign trade / balance of trade Inflation and deflation

    Interest rates

    Foreign exchange

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    TERMS ASSOCIATED WITH

    MICROECONOMICSPRICING

    HOUSEHOLD ALLOCATION OF RESOURCES

    HOUSEHOLD SPENDING AND SAVINGPRICE AND INCOME ELASTICITIES

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    Determinants of Health Health has been defined by the World Health

    Organization ( WHO ), as;

    The state of mental, physical, and social well being

    and does not merely connote the absence of illness.Health is a multi factorial phenomenon.

    An individual who does not experience

    any symptoms of disease may not necessarily be

    healthy. For example, a person who has an elevatedblood cholesterol or glucose level, may not feelanything at all even when a disease process is alreadyongoing.

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    Thus the absence of symptoms does not necessarilyconnote healthfulness. An individual may notnecessarily feel anything even when a disease process

    has already started. On the other hand, a woman who experiences nausea

    and vomiting during the early stages of pregnancymay still be considered as healthy, as such can be

    considered normal during early pregnancy. Conclusion; the presence of symptoms does not

    necessarily connote illness. The reason for suchsymptoms has to be investigated.

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    A 35- year old individual who is able to run tenkilometers may be considered healthier thananother individual who is only able to climb a few

    flights of stairs, all other things being equal.

    Conclusion: There are varying degrees or states ofhealth.

    A person who seeks medical care more often thananother may not necessarily be healthier than theother who does not visit a health facility as frequently.

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    Truly the state of being healthy or unhealthy can beexpressed in many ways. Health economics deals withthe manipulation of factors that should be able to give

    people better health. This poses a problem forhealth planners since health is difficult to both qualityand quantity.

    How do we manipulate health? To answer this we haveto study and ask: What determine health? Or simply,what factors influence health?

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    Determinants of Health: Major

    Effects and Intervention Points Underlying Socioeconomic,

    demographic and cultural factors

    Individual ( age, sex, education, occupation, healthbenefits, attitudes )

    Household ( income / wealth , age, sex , composition,social network )

    Community ( ecological climate, markets and prices,transportation size, structure and distribution, socialstructure and organization.

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    Proximate Factors Health Care Service Utilization

    Environmental Contamination

    Nutrient Dietary Intake Fertility

    Injury

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    Explicitly shows that health is a multi factorialphenomenon. It is directly and indirectly affected by alot of factors. The diagram shows that health

    intervention does not only focus on the individual, butalso on the household and the community

    Health outcomes are objective measures of health.They are the parameters used to measure the healthcondition of individuals, communities or countries.They are standardized measures which are understoodand applied internationally.

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    Health outcomes. It is important to remember thateconomics seeks to maximize the output of any giveninput. It means that the more goods should be

    produced and distributed for a minimum amount ofresources used. Given this objective, it becomesimperative that health planners are able to measureimprovements in health. A way to be able to measure

    health must be put in place.

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    For planning purposes, the state of health ofindividuals, a community or country is showcased byhealth outcomes/ parameters/ indicators. Health

    outcomes are objective measurement of health anddisease. They can be

    A. Distinct figures eq. Life expectancy ( length inyears ), nutritional status ( weight for age or height );or

    Ratios eq. Mortality rates, morbidity rates,incidenceand prevalence.

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    Planners an objective measurement of health status.While it is very difficult to measure health.Theseparameters give health planners a common language

    in studying and measuring the health status ofcommunities and countries. Being internationallyaccepted, they should be understood by all healthplanners.

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    Examples of Health Outcomes Fertility Rate measures the reproductive capacity of

    groups.

    Crude Birth Rate ( CBR )= Total no. Of live birth x 1000midyear population

    Mortality Rate measures risk of dying within a specificgroup or dying from a cause

    Crude Death Rate ( CDR ) = No. Of Deaths, all causesMidyear population x

    1000

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    Cause Specific Death Rate ( CSDR )

    = number of deaths from specific cause x F

    Midyear populationInfant Mortality Rate ( IMR )

    = Infant Mortality Rate ] 1 year age x 1000

    Total no. Of Livebirths

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    Health outcomes can also be used for monitoring andmeasuring the effectiveness of health activities andprograms that seek to improve health. This can be

    done by comparing these health indicators before andafter a program has been implemented.

    Health Outcomes before = compare = Healthoutcomes afterthe health

    program

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    Proximate Factors Proximate determinants are factors that directly affect

    the health status or outcomes of individual or groups.These factors may be innate to a person, eq, nutrient

    intake and fertility. These are physiological factorswhich directly affect the health status of anindividual. Or, these maybe external factors, e,q.,environmental contamination, injuries, and health

    care service utilization which also directly affect thehealth status of people or communities.

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    Physicians, nurses, and other health practitioners inclinical practice are mostly more concerned with thehealth of individuals.

    Most healthcare facilities commonly focus onproblems of individual. These are nutrition, survival ordeaths ( mortality ) from illnesses, recovery andprevention of disabilities from serious illnesses likestrokes or accidents.

    Good public health programs focus on the preventionof such illnesses stated before.

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    It is important to remember that the treatment ofillnesses should not only be focused on the sickindividual, but also on factors which directly cause

    them. Examples are high intake of dietary fats which results

    in high blood cholesterol levels, and environmentalexposure or constant exposure to air pollution whichresults in chronic lung disease.

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    Proximate factors and health

    programs developed. Proximate factors

    Human care service OPLAN bakuna with jollibee,utilization OPLAN alis disease

    Environmental Contamination Anti pollutioncampaign, workerhealth and safety programs

    Nutrient Dietary Intake Barangay Day Care Centers, vit Acampaign

    Fertility Responsible Parenthood Information Drive

    Injury Dont Drink and Drive

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    Underlying SocioEconomic,

    Demographic, and Cultural Factors Finally, there are factors which do not directly affect

    health outcomes, but have an influence on theproximate factors which ultimately affect the health

    status. These are social , economic, cultural anddemographic factors which seemingly do not affecthealth. However, these factors will ultimatelyinfluence the activities, exposures, and attitudes of

    individuals, households and communities towardshealth. Again, ultimately they will affect healthoutcomes in cascading manner.

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    Underlying factors are those that lie beneath or rootcauses.

    Underlying factors affect proximate factors whichthen affect health outcomes.

    A. Individual Level

    Occupation as a coal miner Exposure to mining

    contaminants Increased incidence of workers lungdisease

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    B. Household level

    Low household income Poor nutritional intake poor nutritional status ( Low weight for height

    C. Community level

    Poor transportation / Transportation network - poorhealth care service utilization more deaths in the

    area

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    each of the proximate determinants and theunderlying causes affect health outcomes in some wayor another. It is important to remember that these may

    all be intervention points which can help improvehealth status or outcomes. However, it is alsoimportant to note that not all factors are within thecontrol of health practitioners and public health

    officials. Thus the theoretical wholistic approach tothe treatment of illnesses will require the cooperationof a lot of sectors which may be easier said than done.

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    Relationship of Health and

    Economics There is a theoretical relationship between health and

    economics which operates like a cycle. It goes asfollows; Better economy allows countries to allocate

    more financial, technological allocated and used forhealth, and manpower resources for health producing activities and programs. More resourcesallocated and used for health lead to improvements inhealth status. This assumes that the money andresources being allocated are used wisely andeffectively. The improvements in health status thenlead to better productivity, more specifically amongworkers. This then contributes to a better economy.

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    The traditional economy is one whose economicdecision are made with great influence from the past.It finds answers to the basic economic problems by

    duplicating the decisions made by previousgenerations. Hence, the traditional economic system iaa system whose past experiences which are handeddown from generation to generation are used as bases

    for economic decisions.

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    Under the command system, the Factor of production,distribution and allocation of health resources areowned and managed by the state. Decision in

    answering the basic economic problem and allocationof health care services are planned, done, and dictatedby the government. There is a presence of centralplanning to allocate health care according to somepredetermined criterion such as need. Thus healthcare needs by the people are distributed based onpriorities set by the committee. Citizen under thissystem have little or no political and economicfreedom.

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    Another system that society uses in allocating thescarce health resources is the free market. The freemarket system would allocate health resources

    according to consumers purchasing behavior. Hence,the price of medical goods and services dictates whathealth products will be produced, how and for whomit will be produced. When the one that needs and offer

    medical and non medical goods and services cometogether to agree on a purchase or sale, the transactiontakes place in what economist call a market.

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    Another system, mixed system which combine parts ofthe command system with the elements of freemarket. The problems of allocation and distribution of

    health resources are determined through acombination of the market system and governmentlaws and policies.

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    Methodologies of Economics Positive Economics is an analysis and describes of

    economic behavior that uses economic theory andempirical analysis to explain what is or what

    happened. It seeks to predict and explain economicphenomena and describes facts and data in theeconomy. Positive economics does not value economicjudgement.

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    Normative economics incorporates ethics and valuejudgements about what the economy should be like orwhat particular policy actions should be

    recommended to achieve a goal. It is concerned withwhat one believes ought to be. Hence, it deals with theappropriateness of an economic outcome or policy. Itseeks to answer the question, what ought to be?

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    The following statements broaden your understandingbetween the two dichotomies of economics to wit:

    Positive : In 2004, the countrys total healthexpenditure reached 165.2 billion, indicating an 11.2percent increase from a 14 year high of 25.3 percentgrowth registered in 2003 at a current price.

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    Normative : to regulate health care expenditure of thecountry, the Philippine government should implementthe national health program similar to that of

    developed countries like the United States, The UnitedKingdom, and Canada.

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    Positive :Environment Protection Agency study showsthat exposure to secondhand smoke causes 3,000 lungcancer deaths per year in nonsmokers.

    Normative : To prevent people from having lung cancerand stop them from smoking the government shouldtake rigid action by increasing tax on cigarettes.

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    The Basic Economic Problems Because of scarcity society needs to carefully craft an

    important decision regarding proper distribution andallocation of resources as a way of providing answers to

    the three basic economic problems, to wit:

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    1. What medical and non medical goods and servicesshould be produceed and in what quantities?

    2. How should these medical and non medical goodsand services be produced?

    3. For whom should these medical and non medicalgoods and services be produced?

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    The first problem deals with allocative efficiency.

    Allocative efficiency refers to a condition in which theoptimal amount of output is is produced given theunderlying structure of social benefits and costs.

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    The second economic problem deals with productionefficiency. Production efficiency refers to a conditionin which one activity either production or

    consumption cannot be increased without reductionon another activity because the maximum amount ofoutput is produced from a finite amount of inputs.That is maximum output with a minimum input

    without sacrificing the quality.

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    The third economic problem deals with the problem ofdistribution. In this economic question, we tend toanswer the question, who should consume the

    produced goods and services?, SHOULD BE FAIRLYDISTRIBUTED TO EVERYONE IN THE SOCIETY.

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    Best way to allocate Health

    Resources Efficiency making the optimal or best use of

    resources . It was named after Vilfredo Pareto, anItalian economist who used who used the concept in

    his studies of economic efficiency and incomedistribution. Hence the economic efficiency ofresources occurs when society is using its scarceresources to produce the highest possible quantity of

    goods and services that consumers wanted to buy.

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    Two parts of economic efficiency Productive

    allocative

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    Productive Efficiency When using the least amountof health resources to produce certain health care at alowest possible cost. It implies that the health care

    sectors are using the least costly land, labor, capitaland entrepreneur, the best available technology andthe best production processes

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    Health Comes from the English word heal which connotes

    the totality or the wholeness of a person, thephysical, mental, social, emotional, spiritual and

    sexual aspect. Health should be explained in Holistic approach.

    Holistic approach means dealing with the significantcontributions and influences of the six aspects of

    health to the wholeness of an individual person.

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    Emotional Health. The capability of an individual toexpress his own feelings and develop his personalrelationship with other people. How to get along with

    others is the best example. Social Health. This connotes the ability to show

    concern and support to other people at all times.Constant communication with friends, family

    members, and other people in the community is anexample

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    Spiritual Health. This refers to an individuals capacityto express his spiritual maturity and moral integrity.We should respect the belief of others with regards to

    their respective religious practices. Sexual Health. This refers to the capacity of an

    individual to accept his or her sexuality including hisor her sexual preference like being a female or male,

    gay or lesbian.s

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    Sector is a component of integrated system such as aneconomy or society in implementing health benefitsand services to its people.

    Health sector are the ones that regulate and help theeconomy with regard to health services. It5 alsoincludes the health of the economy as a whole. It hasplans and procedures for the proper regulation and

    implementation of health services in all places.

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    Objective of Health The main objective of health is to promote the health

    welfare as well as the health services of everybody.

    Every person is always vigilant on how to protect his

    body from any disease or illness that he may acquirefrom his environment.

    Detrimental factors of health that affect ones health

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    The society has a significant role in promoting thehealth welfare and services to the people.

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    Dimensions of health Biological Factors

    Environment God given gift to his creatures

    Society

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    Environment and Health Environment refers to the aggregate of all external and

    internal conditions affecting the existence , welfare oforganisms.

    surroundings

    Sum total of all biotic ( living ), abiotic ( nonliving )factors that surround and potentially influence anorganism.

    h d l

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    Three Fundamental Components

    Of Environment Physical Component this refers to the energy of one

    form or another

    Chemical Component. It refers to anything that

    occupied space. In short it means matter. Example is asubstance whether natural or man made

    Bilogical component. This refers to the living thingsincluding man

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    h i l l h d d h i

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    Physical Health Hazards and their

    adverse Health Effects Effect of global warming

    Long famine and war

    Increasing extremes of temperature as a result ofclimatic change could also result in increasedmortality.

    Radiations

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    Chemical Hazards Smoking

    General airborne pollution

    Combustion of coal and other solid fuels can producesmoke commonly known as polycyclic aromatichydrocarbons ( PAH ) and sulfur dioxide

    Combustion of liquid petroleum products can

    generate carbon monoxide , oxides of nitrogen Industry Incinerations

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    Government Expenditure Poverty and Health are intertwined. Poor countriestend to have worse health outcomes

    A problem on health is often associated with

    substantial health care cost and benefits

    Phili i G t

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    Philippine Government

    Expenditure on Health In 1999, only 3.4 percent of the countrys GNP

    Below 5% minimum standard set by the WHO fordeveloping countries

    108. 3 billion total annual health expenditure in 1999with per capita health expenditure of estimated at1,449 Php per person.

    13.5 percent of Filipinos had insurance coverage,according to the Insurance Commission.

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    Presence of a few modern medical establishments inMetro Manila, health conditions in the Philippinesremain among the poorest in Asia.

    85 million Filipino, about 40 60 % are strugglingagainst poverty.

    Asian Development Bank estimated that there is onlyone doctor for every 9,689 Filipinos and one hospitalbed for 909 Filipinos

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    Low budget of allocation for health and social services

    Confront perennial problems such as outbreak ofDengue Fever, Cholera, Water borne diseases

    Limited access to potable water and sanitation amongthe poor aggravated the problem

    Unplanned urbanization and industrialization are alsocontributory

    There is no city, modern sewerage system.

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    Health Economics Mills and Gilson of the London School of Hygiene Healtheconomics can be defined broadly as the application of thetheories, concepts and techniques of economics in thehealth care sector. Kenneth Arrow, a Nobel Laureate for

    Economics once stipulated that a separate discipline ofeconomics should be devoted to the health sector. Hebelieved that the health sector behaves peculiarly differentfrom other economic sectors and that a careful applicationof economic concepts and methodology should beaccorded to it.

    The allocation of resources between various healthpromoting activities;

    Quantity of resources used in health care delivery toimprove health;

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    Organization and funding of health organization;

    Efficiency of the allocation and use of resources forhealth; and

    Assessment of the effects of preventive, curative andrehabilitative health services on individuals andsociety.

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    Discipline of Health Economics Maximize output out of the given inputs Resources on the production of better health

    Health should be measured and valued

    Improving quality of life, extending life span.

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    Importance of Health Economics Scarcity health resources a choice must be made onwhich particular resources to use for which particularactivity.

    Most beneficial activities are selected among theavailable health resources.

    Where there are scarcity and choices, there are costs.The cost of any choice is the options that a person orsociety gives up.

    Health Economics provides set of analytical techniquethat assist decision-making, promote efficiency andequity.

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    Concepts of Health Economics Economic Logic is based on the notion of Scarcity and choice

    Cost efficient, and

    Trade off

    Health Economics is a logic framework which allows usto reach conclusions about the best way resources can beallocated.

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    Scarcity and Choice Undeniably truth that resources are scarce relative tohuman wants, limited supply

    Resources limited, human wants have no boundaries

    Make wise decisions consistent with their limitedresources

    All societies face the problem of deciding what toproduce and how to divide the products among theirmembers

    Life is full of choices

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    Opportunity Cost and Trade Off The concept of opportunity cost is fundamental tohealth economics

    Scarcity implies the need for choice, so choice implies

    the need for cost.A decision to have more of one good thing requires a

    decision to have less of something else.

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    Opportunity cost arises because choosing one healthcare activity means giving up something else in return.Opportunity cost is defined as the benefit that must

    be foregone by not allocating the resources to the nextbest activity.

    Trade off is a situation in which more of one goodthing can be obtained only by giving of another thing.

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    1. What medical and non- medical goods and servicesshould be produced and in what quantities?

    2. How should these medical and non-medical goods

    and services be produced? 3. For whom should these medical and non-medical

    goods and services be produced?

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    0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    80%

    90%

    100%

    10 20 30 40 50 60 70 80 90 100

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    Supply and Demand and Health You can even make a parrot into a learned economist

    all it must learn are the two words supply and demand

    - Anonymous

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    The importance of the central role of the concepts ofsupply and demand in understanding basic economyprinciples.

    Concepts of supply and demand are not simple thateven a parrot can understand it.

    It implies that they are crucial to the understanding ofeconomics.

    Mastery of these concepts is required for us toappreciate economics.

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    ec on ano : a p no xamp eof Supply and Demand Forces at

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    of Supply and Demand Forces at

    Work During the late eighties, a food product become very

    popular lechon manok. It was a new way of preparing

    chicken. Lechon manok was tender, juicy, tasty, and

    sold at very reasonable price. It was in many ways likethe popular but relatively expensive Filipino food,litson, - only cheaper. A lot of people started to buy it.Soon after it was introduced it become a craze. It

    became a popular dish in parties, pulutan in drinkingfellowship, and a staple food on the middle classdinner table.

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    Putting up a lechon manok business was not difficult. Itrequired relatively low investments and a simple cookingformula for the chicken. Soon a lot of lechon manok stores sprouted. They were found near offices. Along busy

    roads, near stores and supermarkets, near public parks, andeven in front of houses. In a way it become a householdbusiness. Other businesses also developed ; lechon manokoven makers, chicken suppliers, and charcoal suppliersbenefitted from lechon manok industry. S00n, it became

    impossible to travel for five to ten minutes without seeing a lechon manok store. Almost everybody was buying this lechon manok

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    Years passed and the lechon manok began to loseits popularity. Now it is just an ordinary food. Lechonmanok stores are either bringing down prices or

    giving special bargains like buy 1 take 1 offer . It isnow relatively difficult to invest in and run a lechonmanok business. Over the years , the number oflechon manok stores has dwindled. Less and less

    people are buying the delicacy and one by one, thestores closed.

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    Today only a few stores remain. Most are found only inbusy areas. Only very few lechon manok stores haverecognizable names; Andoks lechon manok; Baliwag

    lechon manok,Jonelsbuy 1 take 1, and a few others.And today , the lechon manok store in every streetcorner is just a memory.

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    The Theory of Supply and Demand

    Have you ever wondered how businessesprice their products? What do you think will

    happen if Shell decides to sell theirunleaded gasoline at 50% lower per litre orat 25% higher per liter? Are businesses reallythe ones who control the price of their

    products? Or do they price their buyers willbuy them?

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    Every purchase made on a certaincommodity may be looked upon as a pesovote . Meaning a choice ( vote ) has been

    made on the specific product and money (peso ) was exchanged for the specific goo orservice. Then create a market mechanism

    wherein buyers of commodities, and thesuppliers ( or producers ) of suchdynamically, and constantly interact.

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    The relationship between buyers whodemand, and producers who create a supply

    of goods, is called law of supply and demanddynamics. The La of Supply and Demandshows how peso votes decide the prices andquantities of goods.

    Markets: Interaction Between

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    Markets: Interaction Between

    Supply and Demand Demand emanates from consumers. Consumers

    demand to be able to satisfy their needs and, moreimportantly, wants. At this point, it becomes

    important to define the differences between needs,wants and demand.

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    NEEDSNeeds are things that individuals must have

    to be able to survive ( basic/ physiologic

    needs ) or to be in a state of physical, social,and mental equilibrium.

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    WANTSFrom an economic perspective or business

    perspective , are specific manifestation of

    needs. It can in fact be derived from a need.Therefore they are specific preference or achoice to be able to satisfy a need.

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    DEMAND Is the decision to satisfy a want or need plus

    the capability of accessing and paying for

    such. To demand, a person must be willingto buy and be capable of paying for it.

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    SUPPLY Emanates from producers and sellers. They form the

    other side of the demand- supply interaction. Alwaysremember that producers and sellers ( businesses )

    produce and sell to make profits. They prefer ascenario where they can sell their products at higherprices simply because it will give them higher profits.

    Figure 4. Maslows Hierarchy of

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    Figure 4. Maslow s Hierarchy of

    Needs

    Self Actualization

    Esteem Needs

    Belonging Needs

    Safety Needs

    Psychological Needs

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    Remember that consumers prefer lower prices, whileproducers and sellers prefer higher prices, do you feelthe tug of war between them?

    Markets are produced when demand forces fromconsumers and producers and sellers interact withone another. It is a dynamic and constantly changingphenomenon.

    Markets are formed from the interaction betweendemand coming from consumers to be able to satisfytheir needs and wants, and supply from producers andsellers to make profits.

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    The demand schedule represents the relationshipbetween the price of a certain product and thequantity that consumers want to buy of such product.

    It is graphically represented by the demand curve. Thesupply schedule, on the other hand, shows therelationship between the price of a certain good andthe quantity that producers will be willing to produce

    and sell. It is also graphically represented by the supplycurve.

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    Ceteris paribus is a term that means all other thingsare being held equal. In showing the relationship ofthe price and quantity of goods demanded (demand

    schedule), all the other factors that may affect therelationship do not change, or are held constant. Thusit isolates the relationship of price and quantitydemanded. The same is true for the supply schedule.

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    The Demand Curve* The demand curve is a graphical representation of the

    demand schedule. It is a download sloping curve. Itshows the inverse relationship between the price and

    quantity of goods that consumers are willing to buy.

    Figure 6

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    Figure 6

    D

    D

    Q1 Q2

    P1

    P2

    Quantity

    Price

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    An example for this is the personal computer. When itwas introduced in the market during the late 70s toearly 80s, it was expensive. Therefore, only the rich

    people were able to afford it. Most, people still usedcalculators and typewriters. With the advent of newmicrochip technology, computer companies are nowable to produce faster and cheaper computers.Thus

    more people are also able to afford it. Therefore, morecomputers are now being bought. Today, the vision ofa computer for every home and office seems possible.

    ac ors a ec e emanCurve

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    Own Price of the Product The price of a product is a certain monetary value at

    which the product is being sold. A higher own price ofa product decreases the demand for such. A lower

    price increases the demand. Thus, there is an inverserelationship between the price of the product and thequantity being demanded.

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    Average IncomeAs the average income of people and households

    increases, the demand for specific goods alsoincreases. This is because when people have higherincomes, they have more money to spend for buyingsthings. For example we can expect that more peoplewill buy more cars once the Philippine economyimproves and the income of people increases. Or, asthe income of a certain person increases, he will tend

    to buy a more expensive car. Higher incomes makecommodities relatively cheaper simply because peoplehave more money to buy goods and services.

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    Figure 7. Relationship of Income and Price. With the price of a

    theoretical product constant, more of such productwith Income 2 which has a bigger Differential 2,

    compared to that of Income 1, with a smallerDifferential 1.

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    Shifts in population demographics also affect thedemand for certain products. This may be a rationalefor the launching of the Dockers Line of Levis who

    have already aged after 20-30 years, must find wearingjeans odd. Thus, the DockersLine-the moreconservative denim shirts and slacks, was introducedto cater to this specific market.

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    Remember that an increase in population generallyincrease the demand for most products, and changesor shifts in population demographics will affect the

    demand for specific products.

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    Prices of related goods Related goods can either be substitute products or

    complementary products.

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    Substitute products:* are commodities that decrease the use of another

    product when more of these other products is used. Anexample of this is the Metro Rail Transport system.

    When it was introduced, the fare was about twice thatof the fare in airconditioned buses. More people tookthe aircon buses, and the MRT system decided to bringdown its fare, closely approximating the fare of aircon

    bus. Now , MRT stations are always full of passengers.

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    Remember that substitute products change and movein the opposite direction.

    Figure 8

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    MRT Aircon Bus

    1. MRT fare decreases

    2. Increase Demand forMRT

    2. Demand for AirconBuses decreases

    Figure 8 Relationship of Substitute

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    Products Step 1 :Price of MRT fares decrease,

    Step 2: Decrease of MRT fare results in increaseddemand for MRT

    Step 3 : Increase in demand for MRT results indecrease in demand for aircon buses ( substituteproduct

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    Complementary Products Behave in the same direction. These are commodities

    that decrease the use of another product when less ofthe other complement is used and vice verssa.

    Examples of complimentary products are gasoline andcars. Lower gasoline prices tend to increase thedemand not only for gasoline but also for cars. Greateruse of one leads to more use of the other and vice

    versa

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    Remember that they change in the same direction.

    More use of cars will increase the use of gasoline. Moreexpensive gasoline tends to lead to less use of both

    gasoline and cars.

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    Gas

    Cars

    2. Decrease Demand forgas

    2. Decrease Demandfor Cars

    1. Prices

    Figure 9 Relationship of

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    Complementary Products Step 1. price of gasoline increases

    Step 2. Gasoline price increase induces acorresponding decrease in demand for such

    Step 3. Decrease in demand for gasoline also affects acorresponding decrease in demand for cars (complementary product ).

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    Taste of Buyers Influences buying decisions but is more difficult to

    assess. Taste more likely than not, differs from personto person. Taste makes people go to either toMcDonalds or Jollibee, or prefer a Mercedez Benz to a

    BMW, drink french wine than an Australian wine.Different people will have different tastes whichinfluence buying behavior. An extreme example oftaste is a multimillionaire who spent US $20 million

    for a ride in Russian spacecraft, travel into space, andstay in the Russian space station for a few days. He ishistorys first space tourist.

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    Although difficult to measure, taste is a very importantfactor in buying decisions of consumers. It is whatmarketing companies try to determine beforelaunching a certain product in the market by doing

    market research . Marketing companies spend a lot ofmoney on this type of research. Why? Because failurein determining buyers tastes may lead to disastrousmistakes in the choice of products to offer to

    consumers. Likewise failure in selling or marketingsuch products may also lead to enormous amount ofmoney being wasted.

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    Other particular factorsClimate and weather affect the demand for umbrellas

    and raincoats. Summer increases the demands forhalo-halo and ice cream. Fiestas affect the demand for

    lechon, pancit, and beer.

    Figure 10.The Demand Shifts

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    Quantity

    Price

    (-) (+)

    D

    Decrease in demand

    Movement along thecurve

    Increase in

    demand

    d d

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    Taxation and Tax Admnistration Governments have the prime responsibility of not only

    maintaining peace and order in their respectivecountries but also putting up infrastructure like roadsand bridges that would ensure economic development.

    Governments also have the responsibility of providingbasic services to their constituents like basic educationand basic health services. These all entail moneywhich need to be spent for all of these. This gives us an

    idea of how taxation becomes important. The taxesthat people pay are a very basic source of revenue (monetary earned for the government.

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    Taxation Taxation is the act of imposing and collecting a tax. It

    is the process or means by which a sovereign entity likea government, through its law-making body, raises

    revenues to defray the necessary expenses of thegovernment for the public.

    h i i f

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    Characteristics of Taxes Taxes are an enforced contribution. Government

    should be able to lay down the foundation for theireconomies to develop and subsequently make the

    citizen earn. Therefore it is only fitting that earnersgive a share of their earnings to the government in theform of taxes. Ultimately and ideally these, these taxesgo back to the public in terms of basic services ,

    protection, peace and order from the police andmilitary, and infrastructure such as public works.

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    Taxes are generally payable in money. The more youearn, the more you pay, the more you pay, proportionto the level of earnings, the value of property, and the

    rate of consumption. Taxes are imposed on persons and property ( the value

    of the property.

    Taxes are levied by the national or local government

    unit. It takes a congressional act to put up taxes.

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    Taxes are imposed solely for public purposes.

    Classification of taxes as to the

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    subject matter Personal, poll, or capitation ( residence tax ),fixed

    amount )

    Property ( real property tax on land, house and lot,

    personal property like jewelry and cars Excise. A cut imposed on consumption ( alcohol tax ).

    Engagement in the act or practice of a profession (physicians PTR )

    A

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    As to purpose General, fiscal, or revenue. Generate income or

    revenue for the government,ex. Income tax

    Special or regulatory like cigarettes, energy

    consumption to control consumption

    As to scope or authority imposing

    h

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    the tax National ( income taxes )

    Municipal or local ( vary from locality to the other )

    A t d t i ti f t

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    As to determination of account Specific ( per cartoon of cigarettes, Per liter of gasoline

    Ad Valorem ( added into the assessed value of ataxable entity being taxed , ex.3% real estate property )

    d i

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    As To Graduation or rate Proportional ( EVAT ) fairly fixed in proportion to

    what is being consumed

    Progressive or graduated ( earnings 100 k- 10% . 500k

    30% ) Regressive ( less tax on motor vehicle as the no. Of

    years of use of such increases )

    Definition of Different Kind Of

    T

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    Taxes Income tax ( National and progressive )

    taxDonorstax Donors and donee )

    Estate tax ( inheritance tax ), lawful heirs or

    beneficiaryValue added tax ( sale or exchange of goods and

    services or lease of goods and real properties, apercentage tax

    Other percentage taxes ( based on selling price,amusement tax, life insurance, sale of share of tax

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    Excise tax ( imported goods )

    Documentary Stamp Taxes ( all documents as evidenceof transfer, acceptance of right,ownership )

    Custom duties and tariffs ( imported and exportedgoods )

    Travel tax

    Energy tax ( petroleum products, aircraft and watercraft tax and electric power to prevent wasteful use ofelectricity and fuel

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    Private motor vehicle tax ( yearly upon renewal of

    registration

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    Tax levying the act of putting taxes on person,activities and products and determining the amount

    Tax assessment the official action of an officer duly

    authorized by law,duly prescribed by law. Tax collection process of getting the taxes

    Tax assessment and tax collection is done by thebureau of Internal Revenue using the internal revenue

    code and by the Bureau of Customs through customiff