The monopoly power of the pharmaceutical U.S. drug makers enjoys the long term implications and the benefits of the patents once they have produced their prescription drugs. The main role of the drug makers is to produce the drug, which is rare in the market, and for this; it has to invest the high research and development resources. As the R&D costs high, the government also grants the research grants and if the government is aiding the fund, then the government can regulate the prices and control it. In the most of the U.S company cases, as the drugs produced are for the diseases, which is epidemic and for which there Is no cure, the drugs once produced are sold at a higher price, earning an abnormal profit and even controlling the market. For example, monopoly pricing power for such drugs can be accounted for the 12 or 13 years and during this period, the drugs can charge abnormal prices and even can earn higher profits than usual (The Atlantic, 2019). For example, in 2015, there have been so far 25 biggest software companies that have secured the average profit margin of 13.4 percent; and there are approximately a total of 25 biggest pharmaceutical companies that have the average profit margin that is 50 percent higher, 20.1 percent (Chandra, 2019).
For example, in the case of the Cancer, even if the pharmaceutical industry has invested a high R&D and they are producing the drug, under the drug licensing and patent right, tie charge a higher price in the market from the consumers. As the consumers to get treated have no choice but to buy the medicine which is the rare and only medicine to secure life, therefore, the people would continue to buy the medicine from the pharmaceutical companies. Due to the patent's rights, the companies enjoy, of not getting copied/imitated by the competitor's firms, and even have to procure and secure the same treatment. But in the same manner, the competition would not hold the prices sufficiently. Subsequently, for the pharmaceutical companies, they can also enjoy the monopoly pricing power which would be as long as 20 years such as Mylan's EpiPen patent, etc. Under this, the drug’s packaging can enjoy the immense power of overcharging the drug’s packaging or method of administration and as such no power in the clinical benefit that can pay off the patents. It would further lead to the higher pay off generic drug manufacturers and subsequently not to bring out the generic substitute to market. As when the patent expires, the drug makers would enter the market, and prices would be above the generic pricing, for example, the doxycycline’s price that has increased to the 90 times in the two years between 2013 and 2015.
In graph A, this shows the profit-maximizing pharmaceutical company in the U.S. The price would be charge above the marginal cost. But the monopolies cannot charge any amount they want and also the people fearing their lives, and in the pandemic or epidemic situation, the government controls and tries to intervene by restricting the pries and even providing grants to the company, to control prices and quantity (Herdegen, 2016).
High demand causes a high repercussion on the price and the quantity when the companies and the markets are unable to meet the expectations. As in the news article, the Macadamia nuts have doubled the price and it has led to price struggle in order to match with the growing demand of the people. In the news article, it is evident, that the Macadamia nits prices have soared high and due to which the price consumers who have been paying a higher nut price which has doubled in the last 10 years, for example, the $25 per kilogram to about $50 per kilogram (ABC News, 2019).
In the case, the people are still demanding and eating macadamia nuts, due to the health benefits derived from the healthy fats and effective ways of losing weight. So the demand for the good is inelastic to the growing prices of the good. Even with the high prices, the consumers are insensitive and demanding high for the products. Due to the consistent higher demand, the prices of the goods have soared high and there is an inability to meet the demand of the goods (Jordan, 2017).
As observed in the above graph A, the demand of the Macadamia nuts is inelastic which has led to match with the soaring prices and the lower quantity. The pressure is on the demand, as the supply is not sufficient. S observed in the graph B, as the consumers are still demanding high, even after the price increase from the P1 to the p2, it has lead top producers to produce more and supplying the product, to gain the abnormal profits out of it. Due to this, there is a pressure in the market, due to the rising prices and indifferent consumer’s attitude of still purchasing the nuts due to the health benefits derived (Lin, 2018).
In the case of economics, an externality is defined as the cost or benefit due to which, there can be a wide impact over the third party who would not choose to incur that cost or benefit. A positive externality is defined as how someone can be created due to the private behavior leads which would also be defined as the broader social benefits (The Conversation, 2019). For example, when someone is purchasing a hybrid car or getting vaccinated along with stopping to smoke, in all such conditions, the act of someone’s private behavior can further reduce the risks for everyone. Another factor is the negative externality, which is described as the private behavior, which would lead to the public harm and for example, the pollution from the nearby factory, coatings impact on the people staying around, and experiencing the health hazard (Siu 2019).
In the above graph A, as observed, that even if the contagious is epidemic, most of the U.S. health workers are still risking their lives, in order to treat, control, and take care of the patients. The virus has caused a tremendous impact, but due to the U.S health worker enact, not only it is important to control the virus, help the people of receiving, and even helped them to control the things. Due to the high social cost, it has increased the positive externality and the people are saved, due to their small acts, such as delivering food, supplies, workers, and even providing care to the thousands of people. The SMB is higher than the demand and quantity has increased.
In graph B, due to the prolonged exposure to taking care of the coronavirus, it would cause the problem of securing the infection and can also lead to death. In such a case, the negative externality is getting infected due to other people's infection. It would be an additional cost of the social and the externality which has to be paid by the health workers and it would cause a negative externality overall.
The externalities are the spillovers, which can cause a negative and the long term consequences on the environment and the people. Due to the action of one person or the group, it would cause the long-lasting implications on the environment and the overall set up. To control the sit-upon, the social cost should be higher and the derived benefit should be higher, to control the spillover effects on the other parties.
As Coca Cola, are producing the cold drink in the plastic containers and the cans, which are not easily disposable, it has created pollution and affected marine life. It is a negative externality, which has been caused due to the producer's inability to invest and find out an alternative to sell the cold drinks in the safe container. Due to the high plastic use, not only it has created the never-ending problem of pollution, but the plastics cannot get decomposed or are not biodegradable, which leads to the long term implications on the environment. It would further erode the environment that can lead to the long term consequences on the environment (Siu 2019).
In the graph A, as the Coca Cola is more focused on the private costs and the low marginal benefit costs, it has led to the high negative externalities in the environment (Zhironkin, 2019). Due to this, there are increased marginal costs and the higher quantity which has to be generated, to overcome the problem of the costing factor. The Coca Cola is producing at the PMC and is not paying for the social cost by switching to the biodegradable container and also charging minimum to the consumers. Due to this, the consumers are buying more, and subsequently, the environment is getting affected, as it cannot be renewed and even reused.
In the graph B, If the government takes the action of taxing and even putting taxes to the P1 level, it would move the prices to the P2 level and it would cause the social effacing to increase, people buying less Coca Cola products and switching to other alternatives... The producer would try to absorb, but it would only lead to producer paying for the social cost, taxes have caused the Coca Company to pay for the private cost in the market. The company by getting taxed would experience a reduced quantity and it would help to control the spillover effect on the environment. It would farther lead to controlling the situation, as the same tax collected from the company and the consumers would be used to clean the endowment and also to devise research in disposing of the plastic bottles.
The negative externality can be controlled in the long term, if the government can take necessary action to control the sit-upon and the companies can understand the long term consequences of it (Siu 2019). It would help to overcome the problem of the negative consequences on the environment and even help in overcoming the situation.
ABC News (10th March 2019). Macadamia nuts double in price as growers struggle to keep up with demand https://www.abc.net.au/news/2019-03-11/health-food-trends-drive-surge-in-macadamia-price/10886728
Chandra, A., & Garthwaite, C. (2019). Economic Principles for Medicare Reform. The ANNALS of the American Academy of Political and Social Science, 686(1), 63-92.
Herdegen, M. (2016). Principles of international economic law. Oxford University Press.
Jordan, A. L. (2017). The Commercialization of Conservation: Using Economic Principles to Promote Sustainability. Drake J. Agric. L., 22, 383.
Lin, P. H., Brown, A. L., Imai, T., Wang, J. T. Y., Wang, S., & Camerer, C. (2018). General Economic Principles of Bargaining and Trade: Evidence From 2,000 Classroom Experiments. Available at SSRN 3250495.
Siu, R. C. (2019). Economic Principles for the Hospitality Industry. Routledge.
The Conversation (7th May 2020). Striking Amazon, Instacart employees reveal how a basic economic principle could derail our ability to combat the coronavirus https://theconversation.com/striking-amazon-instacart-employees-reveal-how-a-basic-economic-principle-could-derail-our-ability-to-combat-the-coronavirus-135618
The Guardian (14th May 2020). Coca-Cola most common source of packaging pollution on UK https://www.theguardian.com/environment/2019/may/14/coca-cola-packaging-pollution-on-uk-beaches-surfers-against-sewage-study
The Atlantic (26th, June 2019). Big Pharma's Go-To Defense of Soaring Drug Prices Doesn't Add Up https://www.theatlantic.com/health/archive/2019/03/drug-prices-high-cost-research-and-development/585253/
Zhironkin, S., Khloptsov, D., Skrylnikova, N., Petinenko, I., & Zhironkina, O. (2018). Economic Principles of Mining Region Sustainable Development. In E3S Web of Conferences (Vol. 41, p. 04010). EDP Sciences.
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