Since the 1960s, expenditure on health care in developed countries has risen faster than the general rate of inflation, thus making economic assessment of interventions an integral part of decision making in health services. This paper is the first in a series whose goal is to provide some basic principles of health economics that will allow practising physicians to understand better the economic relations between their practice of medicine, the health-care sector, and the national economy. Some of the most important principles described in this paper include opportunity costs, identifying the appropriate perspective, correctly categorising costs, and discounting costs and non-monetary benefits (eg, lives saved) over time. Economic analyses of medical interventions must also take into consideration the difference between efficacy and effectiveness. Efficacy is the maximum possible benefit, often achieved with carefully controlled trials, and effectiveness is the actual decrease in disease achieved when the intervention is applied over a large, non-homogeneous population. This introduction ends with three methods of assessing the costs and benefits of an intervention-namely, cost-benefit, cost-effectiveness, and cost-utility analyses.