Busuness Studies

CONTENTS

Terms of Reference Page: 3

Executive Summary Page: 3

Main Body:

-Background Information: Page: 3

-Problems with the NHS: Page: 4

-Theories: Page: 4

Solutions/Conclusions: Page: 7

TERMS OF REFERENCE

We are a group of economic consultants approached by The Principal Research Offices in Downing Street Strategy. We are analyzing the problems of the National Health Service (NHS), relating it back to different theories and finding possible solutions for NHS to meet their expectations.

EXECUTIVE SUMMARY

The problems which have arisen since the NHS started are that, not enough money is being invested in the NHS by the Government, therefore causing a lack of resources, which leads to longer waiting hours and poor pay on behalf of the staff.

The theories that coincide with the position of the NHS at this moment in time are scarcity, rationing, opportunity costs and the Economic Systems. As we already know the NHS has trouble with its finances concerning their expenditure. Therefore their scarcity levels have caused them to limit the amount of resources that they have. As a result they have to ration their resources effectively and wisely in order to meet with their patients’ high level of demand.

With regards to the Economic Systems, the NHS is a mixture of both Free Market Economy and Command Economy, therefore making it a mixed economy. This system allows more Government control over the NHS on things such as pricing and decision making.

Based on these theories, we have come up with a few solutions, which we think may help the NHS overcome the problems that they are faced with. Firstly, the Government could privatise the NHS, therefore leaving them to spend their money else where on things such as Education and Welfare Benefits. Moreover, non вЂ" Governmental regulators could be introduced to enable the market to stay competitive and to ensure that consumers are not being exploited by these private firms. The final solution would be to raise taxes. This would allow for Government expenditure to increase with regards to the NHS. However the downside to this is that people already feel that the tax is high enough and will therefore not be willing to pay more money unless they know for sure that their money will get spent wisely by the Government.

BACKGROUND INFORMATION

The National Health Service was set up in 1948 and has grown to be the leading organisation in Europe. The World Health Organisation claim that the NHS is one of the best health services in the world. However in order for the NHS to cope with patient’s demands and the changes occurring, they would need to improve their service to keep their patient’s satisfied.

PROBLEMS WITH THE NHS

In recent years the National Health Service has been in crises, it is argued that they have suffered due to lack of investment by previous administrations. However the cure seems simple, which is to increase spending on the service causing them to run more efficiently. Therefore they have increased spending and rationalised the NHS to make it more efficient. Despite this the NHS are not able to balance their budget in order to meet customer’s demand, therefore causing many hospital wards to close down. Also as technology and treatments are becoming more expensive, the NHS is not able to fund for vital resources, therefore causing many cancellations and longer waiting time. As well as this recruitment is becoming a long process, causing shortage of staff, who are not being paid well.

THEORIES

SCARCITY

Scarcity is defined as “The excess of human wants over what can actually be produced to fulfil these wants”. In today’s society both the rich and the poor have high demands and they want more than they can have.

Consumption and production is a way of people being satisfied. Consumption is based on how much is spent and how much is bought. Production is how much is produced, how the rate of growth affects the economy and why the demand increases and decreases. Resources are very limited therefore this links in with rationing. Scarcity affects NHS because hey have to meet customers needs and wants. Consumption links into this because NHS has to make decisions on where they should spend their money. They want to see what the best way is to cure patients and look after their health.

Rationalization is defined as the “reorganizing of production so as to cut out waste and duplication and generally to reduce costs”. Making choices about what you use and how long you spend relates to scarcity. If you compare the cost of something and how beneficial it is and they put it into action it means you are acting rationally if it’s a benefit. This links in with scarcity because costs and benefits come into this. Therefore NHS have to see if they spend money on resources would it benefit them and also benefit their patients. NHS should mainly see how it would benefit their patients rather then themselves because helping patients is their first priority. They may have to ration resources. It solves economic problems of scarcity. NHS has limited doctors and now waiting lists have been made. Many rational decisions are done by the government in order to afford new resources and technology.

OPPORTUNITY COST

This is an economic term which means the cost of the best alternative forgone. This simply means the cost of losing valuable resources which could be time, money or goods and services in other to be able to obtain other items. The reason for making these rational choices is due to the main economic problem of scarcity where resources are limited which then leads to us making choices.

For example, the diagram below shows a Production Possibility Frontier (PPF) which is the line