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National Information Center on Health Services Research and Health Care Technology (NICHSR)

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Health Economics Information Resources: A Self-Study Course

Key General Economics Concepts

This section is intended to present the names and descriptions of concepts that were not covered in the four health economics modules available for study. Two academics with many years experience between them teaching health economics courses suggested that you might wish to explore these concepts on your own by reading some of the available health economics textbooks and articles listed in the bibliography.

Additional general and health economics concepts include:

Competitive equilibrium model

A model that assumes utility maximization on the part of consumers and profit maximization on the part of firms, along with competitive markets and freely determined prices.

Cost concepts

Differences in cost concepts such as direct and indirect (or overhead) costs (accountants' language) and fixed and variable costs (economists' language)

Demand curve

A graph of demand showing the downward-sloping relationship between price and quantity demanded. (Taylor)

Diminishing marginal utility of income

Makes insurance worthwhile to risk averse individuals

Externalities

An externality is the situation in which the costs of producing or the benefits of consuming a good spill over onto those who are not producing or consuming the good. (Taylor)

Health production function

A production function is a relationship that shows the quantity of output for any given amount of input.

Health utility

Utility is a numerical indicator of a person’s preferences in which higher levels of utility indicate a greater preference. (Taylor)

Macroeconomics

The branch of economics that examines the workings and problems of the economy as a whole—GDP growth and unemployment.

Microeconomics

The branch of economics that examines individual decision-making at firms and households and the way they interact in specific industries and markets.

The margin (marginal cost)

Marginal cost is the change in total costs due to a one-unit change in quantity produced. (Taylor)

Marginalism

The incremental determination of how much of some service or product to produce.

Price and income elasticities

Market sensitivities to changes in prices and incomes. Price elasticity of demand is the percentage change in the quantity demanded of a good divided by the percentage change in the price of that good. Price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price. (Taylor)

Pricing in competitive and monopoly markets

Price refers to a particular good and is defined as the amount of money or other goods that one must pay to obtain the good. Income elasticity of demand the percentage change in quantity demanded of one good divided by the percentage change in income. (Taylor)

Supply and demand

Supply - a relationship between price and quantity supplied. Demand - a relation- ship between price and quantity demanded. (Taylor)

Supply curve

A graph of supply showing the upward-sloping relationship between price and quantity supplied. (Taylor)

References

Glossary and Resources, Economics and Ethics Modules. [online] Site URL.

Byrns, Ralph. A Glossary of Economics Terms. January 2003.

Glossary, in: Taylor, John B. Economics, 3d edition. Stanford: Stanford University Press, [n.d.]



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