Home Columns Why Health Economics? Written by Amina Abubakar

Why Health Economics? Written by Amina Abubakar

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Economics is a social science which study human behavior as a relationship between ends and scares meaning which have various uses. It is the science that deals with the production, allocation and use of goods and services. In order words, Economics is the study of how individuals and societies choose to allocate scarce productive resources among competing alternative uses and subsequently to distribute the ‘products’ from these uses among the members of a society. Health care and health are universally seen as two important products to which all societies commit productive resources. Health Economics, therefore, is the study of how scarce productive resources are allocated among alternative uses for the care of sickness and the promotion, maintenance and improvement of health. It further includes the study of how health care and health-related services, their costs and benefits, and health itself, are distributed among individuals and groups in society.

A fundamental problem facing all societies and the reason that economics exists as an area of study is that productive resources are scarce. Scarcity means that there are not, and can never be enough resources to satisfy all human wants and needs. This observation is extremely clear every day when it comes to matters of illness and health, but it is equally true of other areas of human activity. There exists a constant conflict among alternative uses of productive resources, and a constant need to choose among alternative allocations. Human wants are unlimited but the means to satisfy these want are limited. Hence, all want cannot be satisfy at the same time, even if there is abundant supply of everything not everybody who wants them will be able to acquire all the needs at the same time. Example why it is not automatically beneficial to the poor if a health service quality or efficiency is enhanced? The Answer is as a result of scarcity because in the first instance, the principal beneficiaries of improved service quality are the service’s current users, and coverage of almost all health services is higher among the better-off than among lower economic groups.  As a result, it is these better-off groups who initially gain most, and the disparity between them and lower economic strategy is increased. Therefore, economists define the real cost of an activity (for example, provision of hospital services) as the other outputs that must be given up (for example, other health services such as immunizations, or non-health services or commodities such as defense or vehicles) because productive resources are committed to it. Economists refer to this important basic concept as Opportunity Cost. Policymakers in all societies face decisions about trade-offs such as these on a daily basis.

Defining Efficiency 

The basic concept of efficiency, as the word is understood in common usage by almost everyone, is quite simple: get the ‘most’ out of scarce resources. But beyond this perceptive advice it is not always clear what this involves or how it is achieved. And a word of warning at the onset is in order: Economists attach a very specific set of meanings to the concept of efficiency. Some of these meanings may not be obvious, agreed to or understood by everyone.

The Three Main Elements of Efficiency

The three main elements of efficiency may be summarized in everyday language as follows:

  1. Do not waste resources;
  2. Produce each output at least cost; and
  3. Produce the types and amounts of output that people value most.

An efficient allocation of resources is one which simultaneously meets all three requirements. The first two requirements relate only to production; the third introduces consumption, thereby bringing together ‘supply’ and ‘demand‘.  Examples, if mothers of young children want counseling services for behavioral problems instead of frequent well-child check-ups, then allocative efficiency might be improved by changing the mix of primary care services even if the well child examinations were being provided cost- effectively. In common language, then, efficiency means both ‘doing things right’ (technical efficiency and cost-effectiveness), and ‘doing the right things’ (allocative efficiency).

Health economics can further be illustrated by sharing a story that was shared with me in an online course Iam studying, the story of “Safar Banu”

“I am Safar Banu. I am 43 years old and I have just delivered my 10th child. The nine deliveries I have had before were not easy but I managed without the help of a clinic. Why I didn’t go to get pre-natal care? I was too busy to go, I am often at work in the field shredding jute fibers and I have to care for my family. I had wanted to use something to prevent this pregnancy, but my husband wouldn’t hear of it. In the last couple of weeks I’ve been very dizzy, and my feet have been swollen. I have also been feeling very weak. Since the delivery took place, I haven’t been able to get out of bed for 10 hours, and my condition seems to be deteriorating. My limbs are burning, and my whole body is swollen. They’ve been pouring water over my head but it doesn’t really help. I am so afraid that I will not survive this delivery.”

A gospel Doctor, traditional healer of the village, was called upon when Safar Banu was about to deliver her 10th   baby the family was very poor. “They didn’t have more to pay for the medicines, they were wasting my time, I could attend to patients that were able to pay. But since they called me I have to do something, so I gave her something for the contraction when the labor began, of course this was just aspirin which is cheap. I gave her some more aspirin after the birth to help her with the pain. On the fifth day, the woman had further deteriorated; I didn’t know what was wrong with her and tried several injections and medicine. Of course, I couldn’t any good medicine since her husband couldn’t afford and these good medicines are expensive.”

A Clinic staff says “I work at the MCH clinic in the next village from where the family lives. I was called by Safar’s mother not until five days after she gave birth to her tenth child. When I saw her, she complained of burning legs and she was sweating profusely but had no fever. I diagnosed the case as extreme anemia and tried to convince her husband to let her go to the hospital for a blood transfusion, which was both urgent and necessary. Her husband didn’t listen to me. He went to the village healer, who of course couldn’t do anything for her, even if the family had had the money to pay for the medicine.”

Safar’s son says “all my brothers and sisters and I were concerned when my mother did not recover from the delivery of our youngest sibling. We went to the delivery hut often to ask for news of her. On the seventh day, my cousin and I decided to organize some transport to the MCH clinic because I was afraid my mother would die if we didn’t do something quickly. My grandmother tried to discourage us because she thought it was already too late. Of course we have no transportation of our own and we have no money to pay for someone to take her. I convinced my father to sell half a ‘kani’ of land to pay for the transportation. Everything else in the hospital was provided for free. When we got to the hospital there was no blood for her, so I donated my own. But it was to no avail, we had acted too late. My mother died the following day in the hospital.”

The logic behind the story is that Health sector is like a perfect competitive market. For any market to function, you simply need three components:

  1. Trading of a good or service; (Service Availability)
  2. Two independent players—   ‐buyers (clients),   ‐ seller (Health care providers)s;
  3. ‘Price’ of the good or service that conveys information about its value—   ‐ buyers’ willingness to pay = DEMAND,   ‐ sellers’ willingness to produce = SUPPLY.

And nine conditions for perfect competitive market;


  • Homogeneous (Health care service should be similar)
  • Price should be known and affordable to all


  • Able and willing to pay
  • Adequate Information
  • Rational to make the right decision
  • And time conscious when making decisions


  • Adequate service providers
  • Free entry
  • Free exist

And if only the family of Safar Banu were able to fulfill the four conditions of a perfect competitive market as client, meaning they have the ability to pay for transportation, adequate knowledge about the importance of attending clinic and the ability to make a rational decision about her health in good time she would have survive the situation.

Amina Abubakar is a young female health economist residing in Kano, Nigeria. Follow me @BukarAmina

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