ABSTRACT
This chapter outlines the basic principles of health economics and describes its context within the spectrum of healthcare decision making. Health economics is the discipline of economics applied to the topic of health. Broadly defined, economics concerns how society allocates its resources among alternative uses. The fundamental starting point of economic theory is that the best way of distributing society's limited resources is using the model of a competitive market where decisions are determined by independent consumers and producers using signals in the form of prices regulated by the interplay of supply and demand. All choices depend to some extent on the value systems of decision makers. Clinicians have traditionally operated as advocates of the individual patient and have placed the highest value on patient well being irrespective of cost. In contrast, health economists adopt a value system directed by the most efficient use of resources from the perspective of society as a whole.
