America’s Prescription Drug Plan
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For the past couple of years there has been a bitter battle between Canada and the United States over the importation of prescription drugs. Unfortunately due to amount of uninsured Americans who cannot afford these drugs in the United States, they must travel across the border and buy them in Canada. Currently the United States has made it illegal for anyone but the manufacturer or a selected representative to import prescription drugs into the United States. However the increasing difference in price between prescriptions in Canada and the United States has created an opportunity for Canadian businessmen and women to export these prescription drugs from Canada to the United
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If competitor could immediately copy a new drug the long and high cost development process would be less attractive. In order to encourage drug manufactures to have active R&D, prescription drugs are protected by patents (lasting anywhere from 10-14 years based on the contract). These patents create a monopoly for that drug and ultimately the one for the company that produces it.
The defining feature of a firm with monopoly power is that as they produce more, the price of the good falls. As long as revenue created from expansion exceeds the added cost of the good and/or service, provided the firm should continue to produce. Once marginal revenue equals
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marginal cost the firm should stop expanding. For monopolists, marginal revenue is always below the price so that they stop expanding even though the price is above the marginal cost. Even though consumers are willing to pay the added cost of production the monopolist chooses to restrict output in order to maximize profit. During the contracted period of the patent the manufacturer is the sole provider of the product and can set the price controls (price ceiling or floor).
The preceding graph is the basic monopoly diagram. The red line is demand and the dashed line is marginal revenue. The black horizontal line is marginal cost. Perfect competition is when P = MC and the
Pharmaceutical companies try to maintain a monopoly in the early stages of a drug in order to recover R&D investment. During this period of exclusivity they will try to make a fair profit. This is not a monopoly in the true sense of the word because this period is limited in time. It is perhaps better to describe it as a limited warranty. There are also other limitations. Pharmaceutical companies in some countries may not respect intellectual property and may copy or produce generic drugs even before the patent expires.
Pharmaceutical companies are provided with temporary monopoly rights on the production of new drugs which result in a higher cost on consumers. If competing companies were allowed to produce generic forms of those drugs, consumers will be able to afford those medications even in cases where those consumers have no insurance coverage. The company responsible for developing and inventing the original medication could be offered incentives to invent in the future by either obtaining tax breaks or NIH funding for future research. They could even be offered a percentage of the sales of the generic drugs. Economist Gary S. Becker advocates dropping many FDA requirements that, in his opinion, provide no additional safety measures but rather delay the development of new drugs.[12] Betamethasone, for example, has been part of the standard prenatal care in Europe since the late 1970’s while it got adopted in the U.S. after 1997. On many occasions, the FDA ignores all scientific evidence concerning certain drugs because the manufacturer did not follow their mandated bureaucratic standards.
A monopolist will interrupt operations in the short run if its price does not surpass the average variable cost at the quantity the firm produces.
In this situation the drugs were originally manufactured in the United States or an FDA approved facility. The danger to the end user or patient is simply not knowing where the drugs came from to begin with. This is where the FDA feels the patient could ingest either weak, over potent or counterfeit drugs with potentially deadly side effects. Many on-line Canadian pharmacies have actual drugs imported from U.S. sources and some do not. As long as the consumer can find a reputable and licensed Canadian pharmacy that has a strong Internet presence there is no real danger of impure or counterfeit drugs(2). Several top FDA officials have testified to Congress regarding the importation of drugs from foreign sources. Their conclusion has been consistently, the burden this would place on the director of the FDA would be unfair(4). The Center for Drug Evaluation and Research (CIDER) has attempted to evaluate the potential for regulation of such drugs, with the conclusion that regulation would be extremely costly and nearly impossible. The main reason the task would be difficult would be the need to test every pill, vial, or suppository that entered the United States. Since the drug is generally destroyed in the process the consumer would never receive their prescription. The position of the FDA is, and should be to protect the American public. However during my
One of the greatest problems we face in America today is the use and abuse of drugs in our country. It is important to find a solution that works within our country to combat the growing populations of our nation’s prisons, keep the supply of drugs under control, and have adequate prevention programs in place to help people who need treatment. Throughout reading the material for this course and the research conducted on the topics described in this paper, it is clear that the methods used in earlier years were not able to achieve the results we would like to see. Advocating for reform and the support of the American people can help with the desperate need for change.
Medicare Part D is also known as the drug plan of Medicare. It was enacted on January 1, 2006 and became available to millions of patients on Medicare. Medicare is for those individuals who have been working in the United States and have turned 65 or who are disabled.
Since a monopoly is the only seller of a good in the market, the demand curve is the market demand curve. Therefore a monopoly has a downward sloping demand curve, in contrast to the horizontal sloping demand curve of a firm in a competitive market (Mankiw, 2014). Monopolies aim to find the profit-maximizing price for its product. If a firm is initially producing at a low level of output, marginal revenue exceeds marginal costs (Mankiw, 2014). Every time production increases by one unit, the marginal revenue increases again and is greater than marginal costs (Mankiw, 2014). Therefore
In this essay, federal drug policy, and its correlation with the shortage of drugs in Canada, will be considered. In particular, the disruption of drug supply will be discussed, with a specific focus on drug supply within the province of Ontario. A discussion will ensue surrounding drug pricing and policy, and the ways in which these frameworks can ultimately serve to affect the efficacy of medical treatment and the safety of patients. In addition, the paper will focus on the accountability of multiple stakeholders, at both the federal and provincial levels, in terms of supplying medically necessary drugs to Canadians. This analysis will encompass the dominant role played by pharmaceutical actors in Canada. Finally, conclusion will be drawn which take account of existing federal and provincial programs that aim to address drug shortages and the recommendations on comprehensive and appropriate drug funding.
In the business of drug production over the years, there have been astronomical gains in the technology of pharmaceutical drugs. More and more drugs are being made for diseases and viruses each day, and there are many more drugs still undergoing research and testing. These "miracle" drugs are expensive, however, and many Americans cannot afford these prices.
As the debate over drug prices heats up, it has rekindled a discussion about the private importation of prescription drugs from other nations. Some politicians like Senator John McCain and Senator Chuck Grassley have advocated for importing drugs directly from Canadian pharmacies. While this would allow Americans to pay a lower price for their medication, the pharmaceutical industry is against such a practice.
Another advantage of a monopoly is that you can set the price to how high or low you’d like. Not only that, but you can make as much or as little of the product as you’d like. Monopolies can also make a huge amount of profit since no one has the same product as the monopoly so there is no competition. Monopolies can also afford to use the latest technology there is. Technology is always advancing and there are always going to be newer products that people use each time. Take a cash register for example. Cash registers used to be very low tech. It used to take a while to punch in all the numbers and use a credit/debit card, but now cash registers are fairly easy to use. Nowadays, cash registers are touch screen and the items are on the screen. It is fast, efficient, and easy to use the cash register.
ECS2220 EXAM PAPER MAY 2011 ANSWERS PART 1 Question 1 a) If the monopolist is not regulated, the price will be set at P2. It is the point where marginal cost equals marginal revenue and the resulting optimum quantity is replaced into the demand function. b) The price will be P4. This is the point where the marginal cost equals the average revenue, which in a perfectly competitive industry is also the marginal revenue of the firm. c) The minimum feasible price is P3. The firm will not produce below its average total cost.
This highly favourable competitive environment, in which drug companies obtained patents to protect them from rivals, meant that competitors were effectively blocked from manufacturing and marketing drugs with the same chemical composition for 17 years, which equates to between eight and 12 years once the drug actually gets to market.
b) In a monopolistic market, the price will be greater than marginal cost and thus than the
a) In a perfect competitive market, the sole determinant of pricing is the market demand and the supply curves. A demand curve refers to the total amount that consumers will pay for their products. The supply curve is the total amount that the producers can actually make to supply to the company at the price they can afford or are willing to pay. Another factor in a perfect competitive market structure is the equilibrium price which is basically when the supply of the market meets the market demand of the consumers. Anther unique feature of a perfect competition market is that it is a price taker. In essence, this means that the company doesn’t have any influence on the price. Again, this can only be caused through a market that has a large number of firms with identical products. (Samuelson and Marks, 2010).