Health Care Economics: Opportunity Cost and Diminishing Marginal Utility

Running Head: HEALTH CARE ECONOMICS
Health Care Economics
Name of the Student
Name of the University
Course ID

1HEALTH CARE ECONOMICS
Table of Contents
Part 1: Opportunity Cost..................................................................................................................2
Part 2: Diminishing marginal utility for health care........................................................................2
Reference list...................................................................................................................................6

2HEALTH CARE ECONOMICS
Part 1: Opportunity Cost
Opportunity cost is one of the fundamental costs in economics. This is particularly
helpful in making a cost-benefit analysis of a project. Given scarcity of resources and unlimited
wants, people have to make choices among different mutually exclusive alternatives (Baumol &
Blinder, 2015). People try to make the best choices among the available alternatives. In order to
make one choice, others alternatives have to be sacrificed. Opportunity cost is the cost incurred
from not having the benefits that could have been enjoyed from choosing the second best
alternative. Opportunity cost is defined as the cost of sacrificing potential gain that would have
been derived when one alternative is chosen (Mankiw, 2015). In economics, opportunity cost is
considered as an important economic concept describing relation between scarcity and
alternative choices. The concept is used to ensure efficient allocation of scarce resources (Cowen
& Tabarrok, 2015). The concept of opportunity cost is thus not limited to financial or monetary
cost. It is the real cost of forgone output, lost in time, leisure time, pleasure and any other form of
benefit that offers utility should also be regarded as opportunity cost.
Part 2: Diminishing marginal utility for health care
The law of diminishing marginal utility states that as consumption of a product goes on
increasing additional utility derived from each additional unit of consumption decreases given
the consumption of other products constant (Mankiw, 2015). This is an import concept in
determining demand curve of a particular good. Demand for a good depends on the derived
utility and level of satisfaction. Here, the concept of diminishing marginal utility is discussed in
reference to health care demand.