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The health care industry as an imperfect market

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What are your thoughts on the degree to which the assumptions made regarding the perfect market apply to health care? Please provide examples of why you feel they do or do not apply.

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Solution Summary

The paper describes the assumptions of a perfect market as applied to the Health care industry

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Introduction
A market that meets all conditions for efficient resource allocation is a perfect market (Mwachofi & Al-Assaf,2011).Consumers will pay the lowest price while producers will sell at the highest price possible; the equilibrium price and quantity are determined when the quantity demanded and supplied reaches an equilibrium(Barr,2004). In a perfect market there is efficient resource allocation guided by the "invisible hand" (Smith, 1976).

Perfect markets are not common as most markets fail to meet the necessary conditions for a perfect market ((Smith, 1976).).Markets can fail to correct by themselves and may require interventions from outside the market.

Healthcare does not meet the perfect market conditions that facilitate proper resource allocation because of the nature of the product and service involved.

There are several markets which are interdependent in health care. Education, manpower, institutional, pharmaceutical and insurance is some of the markets involved. Most of these markets again do not meet the perfect market conditions.

There are some conditions that favor a perfect market; when one considers the market structure, perfect competition favors perfect resource allocation. But when it comes to health care, there are barriers to perfect competition. There are entry and exit barriers like licensing, training and investment. This can protect inefficient producers. ...

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  • MMS, Mumbai, India
  • PhD, Madras, India
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