Chapter 1, Problem 1DQ

To determine

The action to be taken by the consumers.

Explanation of Solution

The consumers were not fully aware about the effects of the prescribed drugs because of which the they did not force the U.S Food and Drug Administration (FDA) to take favorable steps.The economic decisions generally involve opportunity costs mainly due to the scarcity of resources. In the given case, opportunity cost also includes the cost incurred in the decision making for introducing a new drug. If the drug is introduced in a hurry without proper testing and examination, then it may lead to negative consequences.

On the other hand, if some lengthy process is followed to test the drug, then it may result in the death of a person due to the delay in providing timely medication. Hence, there is trade off between the two types of errors while deciding on the introduction of a drug. The errors are as follows:
Type I Error: When there are some side effects of the new drug, which are even greater than the benefits.
Type II Error: When the drug is not introduced despite the urgency associated with releasing it due to various regulations.

The trade off would involve opportunity cost as the FDA has to decide between whether to introduce or not to introduce the drug. The testing process of the drug would involve time and cost. The delay caused due to this may also lead to the deaths of patients.

People pay attention only to the Type I Error and not to the Type II Error. This is primarily because Type I Error is apparent, whereas Type II Error is difficult to identify.The decision to introduce the drug can be justified only when a person is so ill that his survival is purely dependent on that drug only.

Thus, it is difficult for an individual to decide between Type I Error and Type II Error. As a particular individual does not have any expertise in the field; therefore, he or she cannot force the FDA to introduce the drug.

Economics Concept Introduction

Concept introduction:

If one alternative is chosen over another alternative, then there is a cost involved in choosing the alternative i.e. the cost of the foregone alternative. This foregone cost is known as the opportunity cost.