skeleton notes 4 part 3 Flashcards
the market for health and healthcare is plagued by
market failures
what are two market failures
monopoly and externalities
when there is only one seller/producer in the market
monopoly
where there are external costs or benefits not being considered/addressed in the market
externalities
why do monopolies occur in the market?
there being some barrier to entry which keeps potential competitors from entering the market
What are barriers to entry in the healthcare market
- patents for new pharmaceuticals and treatments
- high startup and legal/regulatory costs in pharmaceuticals
- relation-based supply chains
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
price/set discrimination
positive profits/rents
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).
Make graph and compare to Skeleton notes 5
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.
Use previous graph to answer this question and use skeleton notes 5 to check answer
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.
Use previous graph to answer this question and use skeleton notes 5 to check answer
Are consumers better or worse off after the patent expires? Explain how and why.
Better off
competition allows for lower prices
more competators/companies expands utilization
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
Use previous graph to answer this question and use skeleton notes 5 to check answer
Are the producers better or worse off after the patent expires? Explain how and why
Monopoly producer is worse off
loses monopoly rift
Are consumers better or worse off if Drug X has inelastic price demand. Explain what this means and why
With inelastic demand (necessity)
consumers are more susceptible to monopoly over pricing
with price setting power, monopolists can engage in ________ if they have an ability to _____________
price discrimination
segment the market
Drug companies and hospitals can __________ that have ____ negotiating power
charge higher prices to buyers
less
who will typically see the highest charges for a given drug or procedure
an individual buyer
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.
medicare negotiated by the federal government
Medicare enrollees taking the 10 drugs covered under pard D selected for negotiation paid a total of ___________ in _____________ in 2022 for these drugs
3.4 billion
out of pocket costs
Insurance companies if not constrained by regulation can charge different _______ to different insurees based on their ________________
premiums
pre-existing conditions
Pharma companies typically sell drugs to patients in ______________ for ______ prices than they do in the US.
lower-income countries
lower
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
segmented
can be enforced
intellectual property
hospitals can act as monopolies due to
high startup costs, agreements with insurance companies, contractual agreements
insurance companies act as monopolies due to
switching/transaction costs
