Economic analysis is founded on the assumption that resources are limited and that they should be used in a way that maximises the benefits gained. It should be clear that economic analysis must be based on a consideration of choices for resource utilisation. Pharmacoeconomics extends these assumptions to drug treatment. Therefore, a full pharmacoeconomic analysis must consider two or more alternative treatments and should be founded on measurement of incremental cost, incremental efficacy, and the value of successful outcome. Most doctors would agree that it is easy to choose between two treatments if the least expensive drug is also the most effective. Economic analysis is required whenever the more expensive of two options is also the more effective. In this instance, the decision maker must believe that the value of one additional successful outcome is greater than the investment made in the more effective treatment. This approach would be a suitable model for comparing new oral third generation cephalosporins with cheaper oral drugs such as amoxicillin. Another decision requiring economic analysis is the choice between a new, oral third generation cephalosporin and an older intravenous formulation of a third generation cephalosporin. In this case, the new treatment is cheaper than the old treatment and the decision maker must be convinced that the oral treatment is as effective as the intravenous treatment. Statistically, it is only possible to exclude a difference of a given magnitude. However large a clinical trial, it is always possible that genuine differences between drug treatments have not been detected. In order to make these decisions, we require more information about the costs of treatment failure and, consequently, the value of better outcome. In addition, debate about choices must consider the opportunity cost of not selecting the least expensive option. What are the benefits forgone by selection of more expensive treatment? This question is poorly understood by clinicians and should be debated more explicitly in public.