Today, spiraling costs of medical care coupled with limited resources have led to an explosive increase in the number of pharmacoeconomic analyses being carried out. The first step in a pharmacoeconomic analysis is to measure the costs and benefits of the therapeutic regimens being compared. Then one compares these costs and benefits by calculating a cost: benefit ratio for each regimen. Four types of economic analyses are commonly used for this purpose. While cost minimization analysis ignores the benefits and focuses only on costs of treatment, cost-effectiveness analysis measures costs in monetary terms and benefits or outcome in their natural clinical units. Cost benefit analysis on the other hand, places monetary values on both-costs and outcome of therapy. Finally, cost utility analysis measures costs in monetary terms, and outcome in a single utility-based unit of measurement. Utility based measures like quality adjusted life-years (QALY) measure the contribution made by the regimens to the patient's quality of life. Finally study designs generally used for generating data for a pharmacoeconomic analysis are mentioned, and concepts like marginal analysis, sensitivity analysis and discounting are explained in the context of health economics.