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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