Serious methodological errors that plague studies in health economics are examined with the focus on misconceptions about the nature and functions of markets. The belief that market economics do not apply to the medical marketplace involves circular reasoning that treats man-made laws and regulations as though they were unchangeable laws of nature. Arguments against the market provision of health care are questioned and the 'information gap' problem is shown to be aggravated, if not caused, by regulations that prevent normal information flows in the market. Similarly, the contention that health care insurance pushes up costs is criticised on the basis of both theory and empirical evidence. The apparent failure to contain costs may be blamed on legal restrictions, government spending and pressure from medical associations. Confusion between normative theory and positive theory is also examined.