2 Why would the market economy produce too little education and healthcare? Healthcare is another mixed good with external benefits.

These external benefits include avoiding infectious diseases;

living and working with healthy neighbours; and living in a society that cares for the sick and the poor and provides them with affordable healthcare.

Because of the external benefits that healthcare brings, no country leaves its delivery entirely to the private market economy. Most countries have both private and public healthcare providers.

Private healthcare is delivered in two sets of markets:

one for health insurance and one for healthcare services.

People buy health insurance from private insurance companies and healthcare services from private doctors, nurses and hospitals. They pay for these services and get some reimbursement from their health insurer.

In the public healthcare sector, services are provided at a zero price, and doctors, nurses and hospitals receive their incomes from the government.

Which is more efficient and which provides the best quality of care: public or private? Does spending more and encouraging competition among healthcare providers bring improved quality?

Economics in Action