ECO401 - Economics GDB # 01 Discussion and Solution Fall 2013

The Case:

Under competitive market structure, price is determined by the forces of demand and supply. If the market is not competitive then government intervention is required to settle the prices. Pharmaceutical industry is one of the fastest growing industries in Pakistan dealing with health business. The market of prescription medicine is not very competitive because the company holds patent for a medicine and has a market power that’s why pharmaceutical companies charge high prices for medicines. People are bound to purchase the medicines at high prices. Most of the current health reform debate agrees on the need to curtail health care costs. Evidence of price ineffectiveness for health services is found in the huge price variations that can be observed for similar services.

Requirement:

Being a student of economics, analyze the above case carefully and suggest how the government can intervene in the pharmaceutical market to curtail the pricing ineffectiveness. Discuss why people don’t decrease the demand for prescribed medicines in spite of increase in medicine prices.

Important Instructions:

ü Write your answer “to the point”. Avoid irrelevant and extra details.
ü Your discussion must be based on logical facts.
ü Do not copy or exchange your answer with other students. Two identical / copied comments will be marked as Zero (0) and may damage your grade in the course.
ü Obnoxious or ignoble answer should be strictly avoided.
ü Questions / queries related to the content of the GDB, which may be posted by the students on MDB or via e-mail, will not be replied till the due date of GDB is over.




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