In the United Kingdom, the national Health service provides free hospital treatment, a free general practitionar service and free prescriptions for certain categories of people. Their marginal cost to the patient is thus zero. However, these services use resources, and it thus has to be paid out of taxes. The question that arises is why are these services not sold directly to the patient. Thereby saving the taxpayer money.

In terms of the above statement, use thw following factors to assess why a free market would fail to provide the optimum amount of healthcare.

1.The issue of equity

2.Externalities.