Health Economics Prelim Exam

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household management (Greek). Proper allocation of limited resources. Supply & demand. The study of production, distribution, and consumption. Prof. Gonzales: The science dealing with satisfying human wants with limited resources.

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economics

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Original position

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everything is abundant

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Why do we need to study economics?

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It is an integral part of life. Most things have a price. Prof.: There is no substitute for education or health.

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Three basic questions

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What to produce? How to produce? For whom to produce?

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Relationship of Economics with other Sciences.

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Definitely interrelated with the social sciences especially politics. Every political decision has an economic aspect.

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passes judgment

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normative

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descriptive statement

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positive

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study of economics stems from two basic facts

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1.limited/scarce resources
2.unlimited needs (multiple wants)

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the cost of the next best alternative

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opportunity cost

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anything, either a physical commodity or service which yields utility and which could command a price if bought or sold in a market.

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economic goods

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without cost; abundant

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free goods

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economic efficiency

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avoid waste

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economic freedom

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having many options

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How do we make the best economic decision?

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Always choose the option with the most benefit.

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“Whatever is worth doing,

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is worth doing well.”

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Adam Smith: unseen hand = unintended consequences

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Even the best intentions can produce unintended consequences.

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land, labor, capital, entrepreneurial skills

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basic economic resources

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1.is a form of capital (non-fluid)
2.is transformed or processed into final goods
3.raw material

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land

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1.skills
2.manpower

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labor

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used for purchasing raw materials

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capital

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the ability to tap and manage the basic resources into final goods

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entrepreneurial skills

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A.GDP
B.GNP
C.the market as a whole

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macro (broad) economics

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A.franchise
B.brands

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micro (specific) economics

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measurement of quantity at a period of time

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stock

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measurement of the movement of quantity at a period of time

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flow

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1.household: everything comes from the household.
a)land
b)labor
c)capital
2.firms
a)types
raw material
intermediate goods
final goods
b)output
goods
services

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circular flow of economic activity

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a)household gives payment to the firms
b)firms give wages and interest to the households
c)saving acts to slow return flow

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return flow

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a)gets land, labor, and capital from the household and it pays wages, interest, and rent to the household
b)similar with firms
c)raises funds by means of taxes

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government

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In terms of the foreign market, balance is achieved when...

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imports = exports

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_______ _______ is a Latin phrase, literally translated as "with other things the same."

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Cēterīs paribus

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______ determines purchasing power

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income

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margarine and butter, or petroleum and natural gas (used for heating or electricity

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substitute goods

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good which is consumed with another good

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complementary good or complement good

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(also called "taste" or "penchant") is a concept, used in the social sciences, particularly economics.

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preference

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It assumes a real or imagined "choice" between alternatives and the possibility of rank ordering of these alternatives, based on happiness, satisfaction, gratification, enjoyment, utility they provide. More generally, it can be seen as a source of motivation.

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preference

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A.Cost of production
i.price of raw materials
ii.labor
B.Number of suppliers
C.Prices of goods and services (substitutes & complements)
D.Taxes and subsidies
E.Technology

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factors affecting supply

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lowers the cost of production but labor suffers thereby affecting the purchasing power of consumers.

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technology

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the sum of all winnings and all losses equals zero

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zero-sum games

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statement true by definition

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identity

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"Net worth equals assets minus liabilities."

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an example of an identity is the statement

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exists when each person's actions depend on what he expects others to do.

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Contingent Behavior

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the source of the unintended consequence.
a small initial change may result in a large final change.

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multiplier effect

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exists when the system is at rest and has no further tendency to change.

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Equilibrium Condition

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position that cannot sustain itself.

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disequilibrium

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movement of the system from a position of disequilibrium to one of equilibrium

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adjustment process

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exist when system is bumped away from an equilibrium and the system has a tendency to come back to that equilibrium.

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stable equilibrium

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any small divergence away from equilibrium will take the system increasingly far from it.

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unstable

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The prices of fine art, stamps, rare coins and other collectibles seem in large part determined by what people expect others to be willing to pay
People are willing to spend P50000 or more (and often much more) for a postage stamp because they are confident that they can resell it at the same price or a price close to it.

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Application of Contingent Behavior

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separates outcomes that are possible for an individual (or a group) to produce from those that cannot be produced.

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production possibilities frontier

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(sometimes called the budget constraint) is the line indicating which outcomes are affordable and which are not affordable.

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Consumption-Possibilities Frontier

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Exchange requires a person to give in order to get.
It constrains people, forcing them to do things that they do not want to do in order to accomplish their goals. This effect is called constrained behavior.

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Effect of Exchange

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"It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinners but from their regard to their own interest. We address ourselves not to their humanity but to their self love, and never talk to them of our own necessities but of their advantages.“

Adam Smith

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constrained behavior

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Politicians would be less sensitive to people's desires if they did not have to endure elections.
Mothers and fathers who tell their children that they will not get dessert if they do not finish their meal.
grade school teachers who tell their students that they will get no recess if they are not quiet

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Application of Constrained Behavior

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The faculty can achieve its goals with the system of tests and grades that is familiar to all college students.
This system forces students to learn what the faculty members desire in order to obtain a degree.
Whether students are fascinated with what they learn or have no interest in it at all does not matter in this system. In either case, learning must take place.

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grading system

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side-effects
example of a side-effect is the production of pollution
Pollution is not an intended product, but it is one output in a production (or consumption) process. e.g. Electricity-Coal Plant-Air pollution

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By-Products

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do not have to be harmful; they can be helpful or neutral.

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by-products

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The commons exist whenever there is a resource--such as grazing land, a hunting area, or fishing grounds--which is open to all.
The problem of the commons refers to the absence of any automatic mechanism or incentive to prevent the overuse and depletion of the commonly-held resource.
The logic of the problem of the commons is behind many ecological problems, from deforestation to depletion of the ozone layer.

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Problem of the Common