Economics Homework Help
FIN University of Nairobi Drug Monopoly Based on Different Reasons Questions
- In the market for pharmaceuticals, drug companies are given patents for the drugs that exclude other companies from being able to produce medications for fifteen years. In economic terms, this is called a monopoly.
- What is the economic basis for the justification of a drug monopoly that is given to pharmaceutical companies? Consider how allowing such a monopoly to occur may help a society. Are there are other markets where such monopolies should be granted?
- In the figure below which is the typical supply and demand curve, Q and P represent the equilibrium price and quantity first draw the new point Q’ and P’ where consumption will occur under the pharmaceutical monopoly. What happens to CS and PS?
- In the figure below (or preferably a new figure) now draw what happens if 90% of the cost of pharmaceuticals are covered by insurance (assume no insurance at baseline). Which curve will shift? Draw both the new Q and P and Q’ and P’. In the new situation is CS greater than with just the monopoly? Is PS greater than just with monopoly?
- Based on these findings, do you believe that drug companies should support or be against universal health insurance?
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