Efficiency is central to economic theory because human beings have unlimited wants but limited resources with which to meet those wants. SOME BASIC ECONOMICS CONCEPTS AND DEFINITIONSįor the sake of clarity and simplicity, it is necessary to define some basic economic terms and concepts. Is health care a commodity to be bought and sold for profit, or is it a basic human right that should be accessible to all citizens?
It requires an examination of the culture and beliefs of the country about health and health care. It is an issue that requires a closer examination of the philosophy behind the foundation of the health care system in any country. This issue cannot be easily addressed through economic theory. 3 When the necessary conditions of the ideal free market are not met, there can be market failures some of which are not easily corrected by the market and therefore require interventions from outside the market.Īnother important issue that is also rarely articulated is whether free markets are a desirable feature of a health care system. Markets do fail because necessary conditions for perfect/free markets are rarely met in any industry and least of all in health care. 2Ī market that meets all necessary conditions for efficient resource allocation is an ideal in economic theory, but a rarity in the real world.
It is important to explore fully the argument, the assumptions made about the free market, and the conditions necessary for the “invisible hand” to allocate resources efficiently. Unfortunately, this assumption is never articulated explicitly therefore the argument is not fully explored, understood or challenged. 1 The argument further states that without government interference, the “invisible hand” of the market would allocate resources optimally leading to economic efficiency in health care.Īlthough interesting, this argument is based on the assumption that health care meets all necessary conditions for an ideal perfect/free market. It is further argued that government rules and regulations applied in health care markets interfere with proper resource allocation resulting in inefficiency. A common argument heard in health care planning and health policy reform debates is that the government should stay out of health care and let the market allocate resources efficiently.
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