List the five assumptions of perfect competition and give an

List the five assumptions of perfect competition and give an example of how each might beviolated in the market for health/health care. Broadly speaking, what are the implications ofthese violations for the appropriateness of government intervention?

Solution

Five assumptions of perfect competition are as below:

1. There are many buyers in the market

2. There are many sellers in the market

3. There is free entry and exit.

4. The market has homogeneous products.

5. All sellers and buyers have perfect information about the market.

Violation in the market for health care:

1. Suppose there are few buyers in the market who are purchasing health care items. It indicates that the market has poor distribution system. Government has to intervene to improve the distribution facilities so that more and more consumers can get the benefit of health care.

2. Suppose there are few sellers in the market. It creates monopoly rights of those sellers, which may lead into their unfair practices. Government has to intervene so that new entrepreneurs could come in the market.    

3. Suppose the entry is stopped because of high fixed cost. Government has to improve the infrastructure facilities.

4. Suppose the nursing facilities are different from hospital to hospital. Therefore, the products are not homogeneous. Government should look into the matter for standardizing those facilities.

5. Suppose buyers were not produced the rate charts of treatments. Therefore, sellers could manipulate the rates after the required treatment. Government should intervene to make a law for disclosing the tentative cost of treatment in early.