What is the difference between "absolute" and "marginal" costs in health economics?

In health economics, understanding the distinction between absolute costs and marginal costs is crucial for proper decision-making and resource allocation. Absolute costs refer to the total costs associated with a particular health care intervention or service, encompassing all fixed and variable costs incurred during its implementation. This allows decision-makers to gauge the complete financial impact of that service.

On the other hand, marginal costs specifically relate to the additional costs incurred when producing one more unit of a service or intervention. This concept is vital for assessing the cost-effectiveness of expanding services or treatments, as it helps identify whether the benefits gained from additional units justify the extra expenses.

Hence, the correct distinction emphasizes that absolute costs account for the total expenditures, while marginal costs identify the incremental financial implications resulting from the production of one more unit of service. This understanding has significant implications for policy-making, resource allocation, and optimizing health care efficiency.