Master of Science in Public Health Economics Assignment: PUBH609

This assignment explores key concepts in health economics through a series of questions and answers. It begins with a discussion of cost evaluation methods, including cost-minimization and cost-effectiveness analysis, applied to clinical trial scenarios and patient decision-making. The assignment then delves into the concept of negative externalities, using smoking as an example to illustrate private and social costs, and proposes government policies to mitigate these externalities. Furthermore, the assignment analyzes a microeconomic scenario, determining the profit-maximizing output level for a pharmaceutical company in a competitive market. Finally, it examines the characteristics of public goods, using the distribution of information during a public health crisis as an example. The assignment covers a wide range of topics within health economics, offering a comprehensive overview of the subject.

Running head: HEALTH ECONOMICS
Health Economics
Name of the Student
Name of the University
Course ID

1HEALTH ECONOMICS
Table of Contents
Question 1........................................................................................................................................2
Question 1.1.................................................................................................................................2
Question 1.2.................................................................................................................................2
Question 1.3.................................................................................................................................2
Question 1.4.................................................................................................................................3
Question 1.5.................................................................................................................................3
Question 2........................................................................................................................................3
Question 2.1.................................................................................................................................3
Question 2.2.................................................................................................................................4
Question 2.3.................................................................................................................................5
Question 3........................................................................................................................................5
Question 3.1.................................................................................................................................5
Question 3.2.................................................................................................................................5
Question 3.3.................................................................................................................................6
Question 3.4.................................................................................................................................6
Question 3.5.................................................................................................................................7
Question 4........................................................................................................................................7
References........................................................................................................................................8

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Question 1
Question 1.1
Given the scenario that result of conventional and new treatment method are the same,
consumers (here the patients) enjoy the same utility from both the treatment. With same level of
utility, consumers’ decision depends on price of the treatment and available resources to the
consumers (Brazier et al., 2017). A particular consumption will choose the method with lower
cost and convenient methodology of treatment.
Question 1.2
The cost of parking close to a physician clinic with a fee of 20 AED per hour. As an
alternative to parking close to physician clinic is to park further away from the clinic and spends
15 minutes more walking with the opportunity cost of walking being 600 AED per hour. In the
presence of opportunity cost of an activity, the patient should evaluate both the absolute and
opportunity of the activity. Given the opportunity cost of walking is higher compared to parking
car close to clinic, the consumer should park close to physician.
Question 1.3
The method of economic evaluation refers to the comparison of the different intervention
of same problem considering cost and consequent. The appropriate evaluation method for the
given case is the cost effective evaluation method where cost of an activity is measured in terms
of effectiveness of final outcome (Coast & De Allegri, 2018). The consequence of the trial is
greater longevity. The cost effective method should be used since the object here is to increase
survival rate of the patient.

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Question 1.4
In the given case result obtained from the two medical intervention is the same. The
decision therefore should be based on cost minimization evaluation method. Of the two
interventions, the one should be selected that have a lower cost.
Question 1.5
A)
When objective of the project is to improve quality of water and public health, the
appropriate evaluation technique is to use cost utility analysis because this method analyzes cost
involved in the intervention against utility measured in terms of improvement in health.
B)
When objective is to build a private laboratory, the suitable evaluation method here is to
use cost benefit analysis because in case of establishing private laboratory is to increase the
benefits (Annemans, 2018). The marginal benefit should be compared with marginal cost to take
decision.
Question 2
Question 2.1
An activity is considered to have a negative externality from consumption when
consumption of a good imposes an external cost to the third party of the consumption. Example
of one such activity is smoking cigarette (Alexander & Neill, 2017). Consumption of cigarette is
harmful for the society and generate negative externality.

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Figure 1: Negative consumption externality of smoking
Question 2.2
Private cost of smoking is the cost that the smokers themselves need to bear. The first
component of private cost of smoking is the cost of cigarette per pack. Besides cost of cigarettes
per pack another component of private cost is health cost arises from greater possibility of
developing different chronic disease and a higher morbidity rates because of regular smoking.
Smoking not only harm the direct smokers but also harm those who are directly not
involved in such activity. They are called passive smokers suffered from active smoking by
others. The social cost of smoking include increase in healthcare expenditure of government to
treating smoking related health issues to both active and passive smokers (Yamamura, 2016).
Other components of social costs are absence of employees, loss of worker productivity and loss
of income, premature death and lose of disability adjusted life years.

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Question 2.3
One policy that UAE government can take to address the negative consumption
externality from smoking us to make the smokers pay for the social cost. To do so government
should impose a tax on pack of cigarettes. This kind of tax by increasing the effective price of
cigarettes may discourage smoker to smoke less cigarettes (Ali, 2019). Besides the revenue
collected from the tax can be used to carry out health care expenditures.
In addition to implementing tax on cigarettes government can arrange different awareness
campaign to increase awareness among common people to make them more inform about the
adverse effect of smoking on health and on the society as a whole. Government should also take
step to ban advertisement of such goods.
Question 3
Question 3.1
Table 1: Profit, Total Revenue, Marginal Cost and Marginal Revenue
Question 3.2
The profit maximizing level of output is 5 packets of Metreleptin. Profit maximizing
level of output is achieved where marginal revenue equalizes with marginal cost (Fine, 2016).

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Given the above table, marginal revenue equals to marginal cost somewhere between 5 and 6.
However, with 6 packet the marginal cost exceeds the marginal cost. The profit maximizing
output level therefore is 5. The Maximum profit corresponding to this output level is 135.
Question 3.3
For sellers who sell two packets of Metreleptin at this given price, I would switch to other
pharmacies who are selling five packets at the same price. Selling two packet of cigarette at the
given price is not socially efficient. Socially efficient outcome is achieved when marginal
revenue is equal to marginal cost (Browning & Zupan, 2020). Corresponding to two packets of
Metreleptin marginal cost of production is 17 and corresponding marginal revenue is 60.
Marginal cost is well below the marginal revenue, producer is not utilizing the full capacity of
production indicating inefficient allocation of resources and inefficient level of production.
Question 3.4
Figure 1: Average Total Cost, Marginal Cost and Marginal Revenue

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Question 3.5
The previous case represents case of a perfectly competitive market. Perfectly
competitive market is characterized by an infinitely elastic demand curve and the marginal
revenue is same as price. Like perfectly competitive market the market price for Metreleptin is
fixed producing an infinitely inelastic demand curve (Kreps, 2019). Since price is fixed, the
marginal revenue is same as the price like the perfectly competitive market.
Question 4
The rapid spread of novel coronavirus (2019 – nCoV) is a threat for the global economy.
In response to the program different nations are taking steps to prevent spread of the disease.
One major part of such programs is spreading awareness among the people through national
distribution of brochures, free Wi-Fi, cell phone service and different safety awareness notices in
the public places. Since information are available to the public at free of cost, the sources of
these information are classified as public good (Cowell, 2018). The two important characteristics
of public goods are non-rivalry and non-excludability. The characteristic of non-rivalry suggests
that consumption of the good by one individual does not reduce the benefit of the good to
another individual. The feature of non-excludability suggests that it is not possible to exclude
anyone from consumption of such goods (Mankiw, 2020). Like public goods distribution of
information from different sources satisfy the characteristics of non-rivalry and non-
excludability. Information obtained by one individual does not reduce the benefit of such
information to another cost. Besides, irrespective of the fact that whether someone is paying for
the information or not this information is available to everybody. It is not possible to exclude
anyone from getting the information (McKenzie & Lee, 2016). Since the sources of information
are neither rival nor excludable in consumption, they are classified as public goods.

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References
Alexander, D. L., & Neill, J. R. (2017). Estimating the corrective tax for goods whose
consumption affects the consumer’s health. Atlantic Economic Journal, 45(1), 103-117.
Ali, Z.S., 2019. Evaluation of State Levies Policy on Cigarette and E-Cigarette. Customs
Research and Applications Journal, 1(1), pp.163-171.
Annemans, L. (2018). Health economics for non-economists. Principles, Methods and Pitfalls of
Health Economic Evaluations. Kalmthout, Belgium: Pelckmans Pro.
Brazier, J., Ratcliffe, J., Saloman, J., & Tsuchiya, A. (2017). Measuring and valuing health
benefits for economic evaluation. OXFORD university press.
Browning, E. K., & Zupan, M. A. (2020). Microeconomics: Theory and Applications. John
Wiley & Sons.
Coast, J., & De Allegri, M. (2018). Qualitative methods in health economics. In Oxford
Research Encyclopedia of Economics and Finance.
Cowell, F. (2018). Microeconomics: principles and analysis. Oxford University Press.
Fine, B. (2016). Microeconomics. University of Chicago Press Economics Books.
Kreps, D. M. (2019). Microeconomics for managers. Princeton University Press.
Mankiw, N. G. (2020). Principles of microeconomics. Cengage Learning.
McKenzie, R. B., & Lee, D. R. (2016). Microeconomics for MBAs: The economic way of
thinking for managers. Cambridge University Press.

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Yamamura, E. (2016). The effects of the social norm on cigarette consumption: evidence from
Japan using panel data. In Behavioral Economics of Preferences, Choices, and
Happiness (pp. 255-273). Springer, Tokyo.