i. What is a market?

Overview

For many people the word market conjures up a picture of a town square with lots of small stall holders selling everything from fruit and vegetables to meat and fish. For economists, the term has a much wider meaning. It is used to describe any process of exchange between buyers and sellers. Formally, a market can be defined as any set of arrangements which allows buyers and sellers to communicate and thus arrange exchange of goods, services or resources. A free market is where such exchange occurs without interference from the government. Information is a vital ingredient for any market. Both buyers and sellers need to have access to sufficient information to allow them to make rational decisions.

Who are the buyers and sellers?

So a market for health care must involve two groups: the buyers and the sellers, who interact to trade health care. Who would the buyers and sellers be in such a market? We all want good health and so most of us would be prepared, if necessary, to purchase medical treatment to cure an illness. This suggests that everybody is potentially a buyer (or consumer) of health care. More precisely, at any moment, a buyer would be anybody who was ill or who wanted preventative medical treatment such as a vaccination or who wanted guidance about their health. The sellers would be those people who could provide medical and health care services, such as doctors, nurses, physiotherapists, dentists and high street chemists.

In the UK osteopathy provides an example of a health care market which corresponds quite closely to the textbook model of a market.
Osteopaths manipulate and massage bones, muscles and ligaments which have been twisted or strained in some way. Increasingly, they specialise in dealing with the kind of sprains and strains that people get from sporting activities.

Until 1993, anybody could set up as an osteopath and advertise their services. Osteopaths operated outside the NHS selling their services directly to consumers. Osteopaths either worked individually or in small practices and they all sold a very similar service. In the next three sections we use the example of osteopathy to look at demand then supply and then put the buyers and sellers together to look at the market for osteopathy.