Question

A perfectly competitive market is the baseline to which real-world markets are often compared. Health care markets differ from this baseline in all of the following ways, EXCEPT: Question 20 options: a) There is a principal-agent relationship between buyers (patients) and sellers (providers like physicians). b) often one party to a transaction has more information than the other party. c) Market supply is restricted by use of regulations. d) Market prices do not always convey information about costs and benefits. e) In health care markets the forces of supply and demand are not at work.

Answer 1

Health care markets differ from the perfectly competitive market.

The difference is due to following reasons -

1. Perfect knowledge pertaining to market conditions is absent in case of healthcare markets.

2. Regulations in healthcare markets distorts market.

3. Forces of demand and supply do not work in proper manner in market for healthcare.

4. There is adverse selection in case of healthcare market.

However, there is no principal-agent relationship between patients and healthcare providers in case of healthcare market.

Hence, the correct answer is the option (a).