Cost Utility and Cost Effectiveness Analysis

Cost Effectiveness analysis looks at economic decision making to weigh up the costs and effects of a particular economic action. It is a way to measure the costs and the benefits from a decision. In a way it is similar to cost benefit analysis. However, cost effectiveness analysis doesn’t necessarily have to categorize all the benefits into a  monetary value. (Although it should be a single measure) For example, this may look at various methods of reducing pollution. It would compare the costs and see how much pollution can be reduced by. Cost effectiveness analysis could also be used for deciding which method of electricity generation to use.

Cost Utility Analsyis 

Cost Utility Analysis involves looking at whether an action should be undertaken. In particular, it looks at the cost of the action compared to the increase in utility. In health economics this is particular with regard to life expectancy

For example, cost utility analysis may be used in health care to decide whether someone should be treated.

The cost of treating someone with a rare cancer may be £400,000. If this leads to an increase in life expectancy of 1 year. We can say the cost utility of this treatment is £400,000 per year.

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Indian Economy 2008

Indian Economy 2009 Behind China, India is the second fastest growing economy. According to a survey by Goldman Sachs, India will become the 3rd largest economy by 2035. This is measured in $US. If we use PPP (purchasing power parity) which takes into account local purchasing power, India already has the 3rd largest economy. However, …

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£10 – What happens if I take a £10 to the Bank of England?

What happens if I take a £10 to the Bank of England? If you look at a British £10 note, it says “I promise to pay the bearer on demand the sum of ten pounds” Therefore, if the Bank of England is true to its word, you should be able to go to Threadneedle street …

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Could UK economy enter into a Recession? (2007)

In many ways the economy is in a good position. The main economic indicators suggest a strong and sustainable economy, which offer good prospects for 2008.

  • Economic growth, at 2.6% is close to the long run trend rate.
  • Unemployment, according to JSA measure, is under 1 million. At 3% of the labour force this is fairly close to full employment. (although the more reliable Labour force survey suggests the true level of unemployment is higher.
  • CPI Inflation is 2.1%. This is almost exactly the government’s target of 2% +/-1

The main economic predictions forecast similar statistics for 2008. Economic growth is forecast to continue at around 2.5%. In the latest Bank of England inflation forecast, they predict inflation will rise slightly before dropping back to 2% at the end of 2009.

All these statistics and forecasts suggest that the government is correct to claim that the UK economy is in a very strong position for 2008.

However, there are several trends which suggest that this optimism may be misplaced.

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Reasons for Chinese Economic Growth 2000-2007

Readers Question: What is the most important reason why there is an improvement in the economic growth in the chinese out of the following policies. is it Government policy, education, investment from overseas, cheap labour or natural resources.

1. Cheap Labour

China has a large unskilled workforce willing to work for low wages. In the north many farmers struggle to make an income, therefore, they are willing to move south and work in manufacturing for low wages. Therefore, despite high growth, wages have remained low. This has meant Chinese exports have continued to be very competitive. Exports to the rest of the world are one of the main factors behind increased AD and China’s. Cheap labour has also helped avoid wage inflation, which could destablise economic growth.

2. Government Policy

The Chinese government have been keen to promote economic growth (they have been concerned about unemployment from privatised industries and agriculture). Therefore, they have kept the Yuan undervalued. This makes Chinese exports more competitive and has helped the exporting sector. The government have also kept interest rates relatively low. Although, it is sometimes difficult for small business to get loans. Low interest rates have also encouraged some irresponsible lending. Arguably the government have contributed to a boom and there is a danger that the government have allowed growth to be too high. This could lead to inflation and a downturn in the future.

3. Raw Materials.

China has good reserves of raw materials such as coal. However, for many raw materials they are net importers. This is true, particularly, for metals, oil and precious commodities. In fact demand from China is one of the main reasons behind the boom in commodity prices. Therefore, we could say China has experienced growth, despite having to import so many raw materials. The increasing price of oil and metals may be a constraint on future growth.

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Should we increase tax on cars?

Readers Question: over the next 10 years, should the government make greater or lesser use of measures such as road pricing or taxes on fuel to reduce road use? In the UK, road use creates many external costs. This includes increased pollution, congestion, and accidents. Therefore, the social cost of driving is greater than the …

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How Much Would You Pay for Cigarettes – $222?

When we buy a packet of cigarettes for $8, we may think that this is the personal cost. But, a new study claims the real personal and social cost of smoking a pack of cigarettes is closer to $200. pdf of report – Report by Kip Viscusi and Joni Hersch To arrive at these statistics …

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Preparing for Economics Interview at Oxford

Readers Question: what do I need for an interview of “Economics and Management” course or PPE course in Oxford ?

I have written one article here with some general advice for preparing for an interview at Oxford

For Economics and Managemanent or PPE. I would suggest the additional pieces of information

1. Read Outside Syllabus

Make sure you have read, at least, a couple of economics books which go beyond the A Level syllabus. This might be the popular Freakonomics, or something by Paul Krugman . There is no guarantee that they will ask you about what you have been reading. But, If you can’t point to any outside reading it will look bad.

2. Be Confident to Express Opinions.

If you were asked should the UK join the EURO, make sure you would be able to offer some convincing arguments one way or the other. At the same time, try to give the impression, you are aware things are not black and white.

3. Practise speaking / arrange an interview with someone.

In an interview you want to:

  • Avoid excessive hesitation
  • Answer the questions they ask
  • Be confident but not arrogant.
  • Appear interested in the topic
  • Look well presented

Don’t worry about being a bit nervous, but, it makes a big difference to have a mock interview, making it as realistic as possible.

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