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Essay / Research Paper Abstract
This 11 page paper applies a number of economic principles to pharmaceutical companies in the way in which they produce and then sell drugs. Pharmaceutical companies can produce drugs for only pennies a pill. These companies are protected by patent laws for new drugs they develop and with a patent protecting their product; they have an effective monopoly on the drug. If this drug is sold at marginal cost, no new drugs would ever be developed as the company must take into consideration the research, development and the drug approval costs which must be recovered. The company must find a balance in maximizing profits (as a monopoly) and having their marginal revenue cover their high initial costs (in order for consumers to afford their product). This paper discusses order these principles and includes 2 supply and demand graphs to illustrate the points raised in the paper. The bibliography cites 5 sources.
Page Count:
11 pages (~225 words per page)
File: TS14_TEdrugprice.rtf
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Unformatted sample text from the term paper:
of producing and marketing the drugs it may be argued that the firms are leveraging the position that they are placed in as a result of the patent protection and
their ability to maximize profits. By looking at the firms from an economic perspective the practice can not only be understood, but can be seen as required in order to
protect the industry and ensure that research and development carries on taking place. In order to understand the economic impacts, especially those of the monopoly market that result from
the protection provided by a patent, production and costs and the impact that these have on price, the first stage is to consider the basic economic concepts that are needed.
The usual way of looking at any market, whatever is being sold, is usually in terms of the way along with the quantity of goods are supplied and the
quantity that are demanded (Rattinger et al, 2008; Nellis and Parker, 2000). This is the concept of supply and demand, which is basic to most economic theories. The
pattern for goods is usually one where as a price increases the demand for a good will decrease in the demand, with fewer people able to afford the goods. The
converse is also true, as process fall then there is usually an increase in demand, as the goods become more affordable or may be more desirable compared to substitutes. When
this is presented on a graph there is a downward curve if the quantity demanded is shown ion the X axis and the price is shown on the Y axis
(Nellis and Parker, 2000). When looking at the supply it is unsurprising that as the prices for the goods increase suppliers will want to supply more as if costs remain
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