skeleton notes 4 part 3

Question 1

the market for health and healthcare is plagued by

Answer 1

market failures

Question 2

what are two market failures

Answer 2

monopoly and externalities

Question 3

when there is only one seller/producer in the market

Answer 3

monopoly

Question 4

where there are external costs or benefits not being considered/addressed in the market

Answer 4

externalities

Question 5

why do monopolies occur in the market?

Answer 5

there being some barrier to entry which keeps potential competitors from entering the market

Question 6

What are barriers to entry in the healthcare market

Answer 6

1. patents for new pharmaceuticals and treatments
2. high startup and legal/regulatory costs in pharmaceuticals
3. relation-based supply chains

Question 7

the greatest consequence of barrier to entry for competitors is the monopolists ability to _______________ and make _____________ not due to innovation per se, but because they are a monopoly

Answer 7

price/set discrimination
positive profits/rents

Question 8

Draw a market graph with Price on the Y-axis and Quantity on the X-axis — this is for a new pharmaceutical called Drug X. Show a demand curve that begins on the Y-axis at $100 per pill and ends on the X-axis at 100 units (quantity). Draw a second curve that shows the marginal revenue for the sale of Drug X (going from $100 on the Y-axis to 50 units on the X-axis).

Answer 8

Make graph and compare to Skeleton notes 5

Question 9

Draw a market graph with Price on the Y-axis and Quantity on the X-axis — this is for a new pharmaceutical called Drug X. Show a demand curve that begins on the Y-axis at $100 per pill and ends on the X-axis at 100 units (quantity). Draw a second curve that shows the marginal revenue for the sale of Drug X (going from $100 on the Y-axis to 50 units on the X-axis.

suppose the marginal cost of producing one more unit of Drug X is $25 per pill; show the supply/marginal cost curve.

Answer 9

Use previous graph to answer this question and use skeleton notes 5 to check answer

Question 10

Draw a market graph with Price on the Y-axis and Quantity on the X-axis — this is for a new pharmaceutical called Drug X. Show a demand curve that begins on the Y-axis at $100 per pill and ends on the X-axis at 100 units (quantity). Draw a second curve that shows the marginal revenue for the sale of Drug X (going from $100 on the Y-axis to 50 units on the X-axis

Show the approximate market equilibrium while the maker of Drug X holds an effective patent. Label the market price Pm and quality Qm. INdicate on the graph what the approximate profits for the company would be.

Answer 10

Use previous graph to answer this question and use skeleton notes 5 to check answer

Question 11

Are consumers better or worse off after the patent expires? Explain how and why.

Answer 11

Better off

competition allows for lower prices

more competators/companies expands utilization

Question 11

Draw a market graph with Price on the Y-axis and Quantity on the X-axis — this is for a new pharmaceutical called Drug X. Show a demand curve that begins on the Y-axis at $100 per pill and ends on the X-axis at 100 units (quantity). Draw a second curve that shows the marginal revenue for the sale of Drug X (going from $100 on the Y-axis to 50 units on the X-axis

Show the approximate market equilibrium after the patent expires. label the market price P* and quantity Q*, Indicate on the graph what the approximate profits for the company would be

Answer 11

Use previous graph to answer this question and use skeleton notes 5 to check answer

Question 12

Are the producers better or worse off after the patent expires? Explain how and why

Answer 12

Monopoly producer is worse off
loses monopoly rift

Question 13

Are consumers better or worse off if Drug X has inelastic price demand. Explain what this means and why

Answer 13

With inelastic demand (necessity)

consumers are more susceptible to monopoly over pricing

Question 14

with price setting power, monopolists can engage in ________ if they have an ability to _____________

Answer 14

price discrimination
segment the market

Question 15

Drug companies and hospitals can __________ that have ____ negotiating power

Answer 15

charge higher prices to buyers
less

Question 16

who will typically see the highest charges for a given drug or procedure

Answer 16

an individual buyer

Question 17

who pays a fraction of what individuals or private insurance companies pay for the same procedure (and pharmaceuticals). They are able to negotiate prices directly with pharma companies.

Answer 17

medicare negotiated by the federal government

Question 18

Medicare enrollees taking the 10 drugs covered under pard D selected for negotiation paid a total of ___________ in _____________ in 2022 for these drugs

Answer 18

3.4 billion
out of pocket costs

Question 19

Insurance companies if not constrained by regulation can charge different _______ to different insurees based on their ________________

Answer 19

premiums
pre-existing conditions

Question 20

Pharma companies typically sell drugs to patients in ______________ for ______ prices than they do in the US.

Answer 20

lower-income countries
lower

Question 21

the world market for drugs is only _________ to the extent that regulations ____________ that stop entities selling these drugs back to people in the US; protecting the __________ of the phama companies

Answer 21

segmented
can be enforced
intellectual property

Question 22

hospitals can act as monopolies due to

Answer 22

high startup costs, agreements with insurance companies, contractual agreements

Question 23

insurance companies act as monopolies due to

Answer 23

switching/transaction costs

Question 24

physicians can seem like monopoly if there is

Answer 24

not a lot of alternatives

Question 25

look at the graph and describe the situation where a monopolist drug company might be able to achieve the outcome where they charge one price in one market and a higher price in another. Example of high price market? Example of low price market? Who benefits? What is needed to accomplish this?

Answer 25

-

Question 26

the standard market model assumes that all meaningful information is priced into the market. however ___________ and ________ are not always internalized through market prices.

Answer 26

marginal costs (supply)
benefits (demand)

Question 27

the primary assumption of the standard model is that market outcomes are ___________-

Answer 27

socially optimal

Question 28

we as individuals are not typically good at accounting for three types of costs:

Answer 28

costs to our neighbors
costs to our future selves
costs to our future neighbors

Question 29

if real actual costs are not priced into the market model, then the supply-demand equilibrium is not ____________

Answer 29

socially optimal

Question 30

if social cost are considered in the market it would lead to an _____ shift of the ______ cure

Answer 30

upward
supply

Question 31

occurs when a large portion of a community becomes immune to a disease

Answer 31

herd immunity

Question 32

treatments they create external benefits beyond the individual benefit to a patient

Answer 32

positive externality