The supply and demand of preventive goods and services and the need for economic analysis
Chapter 2 introduces readers to micro-economic theory of utility, rational choice, and demand and supply. This chapter explains to readers why markets for healthcare goods and services fail and why this failure is so spectacular in the case of preventive goods and services. The chapter introduces readers to the need for economic evaluation in public health to guide the allocation of scarce public resources towards cost-effective prevention initiatives. This chapter goes on to explain the purpose of economic evaluation and its relationship to key concepts such as scarcity, choice, allocative efficiency, technical efficiency, and opportunity cost in health economics. With relevance to public health, readers are introduced to incremental cost-effectiveness ratios (ICERs), cost-effectiveness planes, and cost-effectiveness acceptability curves (CEACs), net monetary benefit (NMB), and their relationship to payer thresholds.