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Yash Modi
Professor Ghandi
Econ 1020
24 November 2019
Innovation in pharmaceuticals is essential
Pharmaceuticals is a huge industry around the world, especially in the United States. The
United States alone holds over 45 percent of the global pharmaceutical market ("Topic:
Pharmaceutical Industry In The U.S."). In 2016, this share was valued around 446 billion U.S.
dollars ("Topic: Pharmaceutical Industry In The U.S."). The number of prescriptions filled for
American adults and children in 2016 was a grand 4.5 billion ("Topic: Pharmaceutical Industry
In The U.S."). Now that we are aware of how essential this market is we can get into the
controversy of this article. The demand for these drugs is high and people will pay the price
because some need them daily to survive. As explained by the Vox article, " Medication is
treated differently because it is a good that some consumers, quite literally, can't live without."
In economic terms, the demand is very inelastic because a change in price will not change the
quantity demanded by the consumers. Now that we know that prescription drugs are a necessary
and inelastic good for many people, we are ready for the main question: would we rather pay
lower prices for these drugs or pay more which would lead to innovation in the industry?
I personally think innovation is always better, especially in the case of pharmaceuticals.
Regardless of the price if I need this drug to survive I will buy it, however, if the government
regulates the price and this leads to the company not devoting enough time to research and
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development, I would be concerned. As stated in the Vox article, " Lowering drug profits would
make pharmaceuticals a less desirable industry for investors. And less investment in drugs would
mean less research toward new and innovative cures. " What we need to evaluate here is the net
benefit in the trade-off. A key concept in economics is the idea of marginal benefit and marginal
utility. Marginal benefit emphasizes what a consumer is willing to pay for an additional amount
of a good, while marginal utility emphasizes the benefit one will get by consuming an additional
amount of good. As we know both of these tend to decrease as the consumption increases.
However, medicine is a special case because many need it to survive, therefore their benefit will
not really decrease unless they overdose. Marginal benefit is the important one because the
consumer will pay whatever is needed for an additional amount of medicine because it is vital to
their longevity.
Hence, since a higher price for these drugs will not really change the quantity demanded
by consumers, it would make sense to spend a little more money to innovate these drugs. When
the public hears that these drugs are being innovated their demand and trust in the drugs will
only increase, thus leading to more revenue for the pharmaceutical companies and boosting the
overall economy. Due to these facts, it simply does