Question

According to Russell (1992), $1 million spent on two medical interventions yields the following life-years for elderly persons: Pneumococcal Pneumonia Vaccine 100 Life-years Influenza Vaccine 11,000 Life- years Given this information, what is the opportunity cost of $1 million spent on the pneumococcal pneumonia vaccine? What is the opportunity cost of $1 million worth of influenza vaccine? If $1 million were available to spend on medical care for elderly people, how would it be spent based on the data provided if the goal is to save the greatest number of life-years?

Answer 1

Opportunity cost is the cost of the next best alternative, the amount sacrificed in order to get something. Here, this implies that the opportunity cost of $1 million spent on the pneumococcal pneumonia vaccine is 11000 life years saved from Influenza. Also, the opportunity cost of $1 million worth of influenza vaccine is 100 life years protection from  Pneumonia.

If $1 million were available to spend on medical care for elderly people, with an aim to save the greatest number of life-years, it should be done on a vaccine which has a lower opportunity cost in terms of life years. This is 100 life years protection from  Pneumonia and so $1 million should be spent on influenza vaccine.