Education And Debate Economics notes

Opportunity cost

BMJ 1999; 318 doi: https://doi.org/10.1136/bmj.318.7197.1551 (Published 05 June 1999) Cite this as: BMJ 1999;318:1551
  1. Stephen Palmer, research fellowa,
  2. James Raftery, professor of health economics (J.P.RAFTERY@bham.ac.uk)b
  1. aCentre for Health Economics, University of York, York YO1 5DD
  2. bHealth Economics Facility, Health Services Management Centre, University of Birmingham, Birmingham B15 2RT
  3. These notes are edited by James Raftery

    This is the sixth in a series of occasional notes on economics

    The concept of opportunity cost is fundamental to the economist's view of costs. Since resources are scarce relative to needs,1 the use of resources in one way prevents their use in other ways. The opportunity cost of investing in a healthcare intervention is best measured by the health benefits (life years saved, quality adjusted life years (QALYs) gained) that could have been achieved had the money been spent on the next best alternative intervention or healthcare programme.2

    Opportunity cost can be assessed directly with cost effectiveness or cost utility studies. When two or more interventions are compared cost utility effectiveness analysis makes the opportunity cost of the alternative uses of resources explicit. Cost effectiveness ratios, that is the £/outcome of different interventions, enable opportunity costs of each intervention to be compared.

    Although the concept of opportunity cost is fundamental, …

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