Deck 26: The Economics of Prescription Drugs

Question 1

A patent

A)is better for a writer of books than it is for an inventor of medicines.
B)a right granted to an inventor by the government to be the exclusive seller of a good.
C)is never granted for inventions anymore.
D)makes inventing the good less appealing.

Answer 1

B

Question 2

Patents grant the inventor the exclusive rights to sell goods made with the invention

A)for a limited duration.
B)as long as the inventor is alive.
C)forever.
D)as long as the inventor charges what are viewed as reasonable prices.

Answer 2

A

Question 3

The "price" of effectively treating AIDS

A)has gone up substantially with the invention of new drugs that cost more than the older ones.
B)has gone down substantially with the invention of new drugs that cost less than the older ones.
C)is very difficult to estimate, because prior to the new drugs there was no effective treatment.
D)has stayed the same.

Answer 3

C

Question 4

The demand curve for AIDS drugs is likely to be

A)vertical or close to vertical.
B)upward sloping.
C)horizontal or close to horizontal.
D)no different that the demand for aspirin.

Question 5

The reason why a cure to a disease such as AIDS would have less elastic demand than a vaccine at every price is that

A)the vaccine would be more expensive.
B)the cure would be more expensive.
C)for a person with AIDS the only alternative to the cure is death.
D)for a person with AIDS a vaccine would be more effective.

Question 6

The reason why a cure to a disease such as AIDS would have less elastic demand than a vaccine at every price is that

A)the vaccine would be more expensive.
B)the cure would be more expensive.
C)for a person without AIDS there is a freely available substitute-monogamy with an unaffected partner.
D)for a person without AIDS there are no substitutes.

Question 7

A patent

A)is better for a writer of books than it is for an inventor of medicines.
B)is often necessary to motivate inventions.
C)is never sought for inventions anymore.
D)makes inventing the good less appealing.

Question 8

The main reason why monopoly governs prescription drugs is

A)a conspiracy to get as much profit as possible.
B)to motivate innovation.
C)to keep prices high so only the people that need them will buy them.
D)to keep prices high so only the people that need them will buy them and to motivate innovation.

Question 9

In 2014 prescription drugs account for approximately ____ of total health care spending.

A)2)5%
B)10%
C)25%
D)50%

Question 10

Relative to a cure for AIDS, the demand for an AIDS vaccine would be

A)more elastic.
B)more inelastic.
C)equal in elasticity.
D)not as elastic.

Question 11

Once a drug has been invented, marginal production costs are typically

A)much less than the price.
B)about the same as the price.
C)much greater than the price.

Question 12

Monopoly power exists in drug inventions because of

A)patents for drugs.
B)inelastic demand for drugs.
C)elastic demand for drugs.
D)elastic supply.

Question 13

Economists estimate that the rate of return to prescription drug companies is

A)much above the average.
B)at or slightly above the average.
C)slightly below average.
D)much below average.

Question 14

A patent is

A)a right granted to an inventor by the government to be the exclusive seller of a good.
B)often necessary to motivate inventions.
C)never granted for inventions anymore.
D)a right granted to an inventor by the government to be the exclusive seller of a good and is often necessary to motivate inventions.

Question 15

A patent

A)is better for a writer of books than it is for an inventor of medicines.
B)is often necessary to motivate inventions.
C)makes a good that has recently been invented more expensive than it could be.
D)is often necessary to motivate inventions and makes a good that has recently been invented more expensive than it could be.

Question 16

A patent

A)is better for a writer of books than it is for an inventor of medicines.
B)makes a good that has recently been invented more expensive than it would otherwise be.
C)is never sought for inventions anymore.
D)makes inventing the good less appealing.

Question 17

Without orphan drug laws

A)people without parents could not afford drugs.
B)more people would risk losing their parents to disease.
C)people with common diseases would be have little hope of companies seeking a cure for their ailment.
D)people with uncommon diseases would have little hope of companies seeking a cure for their ailment.

Question 18

A patent is a legal device which prevents

A)a company from charging whatever it likes for its product.
B)others from copying an invention.
C)others from copying music and books without author permission.
D)companies from charging unreasonable amounts for their invention.

Question 19

An orphan drug is designed to treat

A)an illness that afflicts few people.
B)people without parents.
C)an illness affecting large numbers of people.
D)an illness that causes parents to die.

Question 20

A patent

A)is a right granted to an inventor by the government to be the exclusive seller of a good.
B)makes inventing the good less appealing.
C)makes a good that has recently been invented more expensive than it would otherwise be.
D)is both a right granted to an inventor by the government to be the exclusive seller of a good and makes a good that has recently been invented more expensive than it would otherwise be.

Question 21

In Figure 26.1, the deadweight loss that occurs with this monopoly is

A)FAC
B)FABE
C)EBC
D)P₂AC

Question 22

In Figure 26.1, producer surplus under monopoly is

A)FP₂C
B)FP₁BE
C)EBC
D)P₂AC

Question 23

Drug companies tend to attribute higher drug prices on

A)pharmacies charging too much for drugs.
B)high litigation costs on drugs that are ultimately shown to be dangerous.
C)doctors distributing too many free samples.
D)Pharmacies charging too much for drugs and high litigation costs on drugs that are ultimately shown to be dangerous.

Question 24

In Figure 26.1, consumer surplus under perfect competition is

A)FAC
B)FABE
C)EBC
D)P₂AC

Question 25

Drug companies tend to attribute higher drug prices on

A)pharmacies charging too much for drugs.
B)long testing processes.
C)doctors distributing too many free samples.
D)pharmacies charging too much for drugs and long testing processes.

Question 26

Drug companies tend to attribute higher drug prices on

A)the low percentage of attempts that actually result in revenue producing drugs.
B)long testing processes.
C)doctors distributing too many free samples.
D)the low percentage of attempts that actually result in revenue producing drugs and long testing processes.

Question 27

Existence of a "deadweight loss" in the prescription drug market indicates that

A)the number of new drugs invented is less than the optimal number.
B)the increased profits to firms is greater than the decreased net value to consumers.
C)the increased profits to firms is less than the decreased net value to consumers.
D)the number of new drugs invented is less than the optimal number and the increased profits to firms is less than the decreased net value to consumers.

Question 28

Drug companies tend to attribute higher drug prices on

A)the low percentage of attempts that actually result in revenue producing drugs.
B)high invention costs.
C)doctors distributing too many free samples.
D)the low percentage of attempts that actually result in revenue producing drugs and high invention costs.

Question 29

Drug companies tend to attribute higher drug prices on

A)the low percentage of attempts that actually result in revenue producing drugs alone.
B)high litigation costs on drugs that are ultimately shown to be dangerous alone.
C)doctors distributing too many free samples.
D)the low percentage of attempts that actually result in revenue producing drugs and high litigation costs on drugs that are ultimately shown to be dangerous.

Question 30

Drug companies tend to attribute higher drug prices on

A)the low percentage of attempts that actually result in revenue producing drugs.
B)pharmacies charging too much for drugs.
C)doctors distributing too many free samples.
D)the low percentage of attempts that actually result in revenue producing drugs and pharmacies that charge too much for drugs.

Question 31

After a drug has been invented, monopoly (when compared to perfect competition)creates

A)more production.
B)lower profits to firms.
C)higher prices to consumers.
D)more production and higher prices to consumers.

Question 32

In Figure 26.1, the price under perfect competition is

A)A
B)P₁
C)P₂
D)F

Question 33

Drug companies tend to attribute higher drug prices on

A)high invention costs.
B)long testing processes.
C)doctors distributing too many free samples.
D)high invention costs and long testing processes.

Question 34

In Figure 26.1, the price under monopoly is

A)A
B)P₁
C)P₂
D)F

Question 35

After a drug has been invented, monopoly (when compared to perfect competition)creates

A)deadweight loss.
B)lower profits to firms.
C)higher prices to consumers.
D)deadweight loss and higher prices to consumers.

Question 36

Drug companies tend to attribute higher drug prices on

A)the low percentage of attempts that actually result in revenue producing drugs.
B)high litigation costs on drugs that are ultimately shown to be dangerous.
C)doctors distributing too many free samples.
D)the low percentage of attempts that actually result in revenue producing drugs and high litigation costs on drugs that are ultimately shown to be dangerous.

Question 37

In Figure 26.1, producer surplus under perfect competition is

A)FP₂C
B)FABE
C)EBC
D)P₂AC

Question 38

In Figure 26.1, consumer surplus under monopoly is

A)FAC
B)FABE
C)EBC
D)P₁AB

Question 39

After a drug has been invented, monopoly (when compared to perfect competition)creates

A)deadweight loss.
B)greater profits to firms.
C)lower prices to consumers.
D)deadweight loss and lower prices to consumers.

Question 40

Between 1986 and 2015 prescription drug prices rose

A)slower than overall inflation.
B)slower than inflation for over-the-counter drugs.
C)at the same rate as over-the-counter drugs.
D)faster than overall inflation and faster than over-the-counter drugs.

Question 41

Most prescriptions are written for

A)live-saving drugs.
B)live-extending drugs.
C)drugs which simply make life more comfortable or enjoyable.
D)over-the-counter drugs.

Question 42

U.S. drug laws prohibiting re-importation of prescription drugs prevent

A)American pharmaceutical distributors from re-selling to Canadian citizens at higher prices.
B)the U.S. government from dictating the drug prices to be paid by Canadian citizens.
C)U)S. pharmaceutical companies from earning monopoly profits.
D)Canadian pharmaceutical distributors from re-selling to American citizens at higher prices.

Question 43

Patents on prescription drugs last

A)forever.
B)from the moment they have been received by the patent office until they are approved by the FDA.
C)from the moment they have been received by the patent office until they hit the market.
D)from the moment they have been received by the patent office and for several more. years.

Question 44

Which of the following legal creations is imperative to creating profits for prescription drug companies?

A)Trademarks
B)Copyrights
C)Patents
D)Corporations

Question 45

U.S. drug laws prohibiting re-importation of prescription drugs prevent

A)American pharmaceutical distributors from re-selling to Canadian citizens at higher prices.
B)the Canadian government from dictating the drug prices to be paid by U.S. citizens.
C)U)S. pharmaceutical companies from earning monopoly profits.
D)Canadian pharmaceutical distributors from re-selling to American citizens at lower prices.

Question 46

Drugs that are labeled "orphan drugs" are

A)made available at no cost to children who have lost their parents.
B)granted very short-lived patents.
C)granted very long-lived patents.
D)denied patent protection entirely.

Question 47

One policy option explored during the Obama administration was to change U.S. drug laws to

A)permit re-importation
B)prohibit re-importation
C)ban television advertising of prescription drugs
D)restrict malpractice lawsuits

Question 48

If the U.S. government were to note that because drug companies can sell their drugs in Canada and make a profit at those regulated prices and impose a similar set of regulations in the U.S. this would have the effect of

A)raising the price of drugs in the U.S.
B)decreasing the motivation for U.S. drug companies to innovate in the future.
C)increasing the motivation for Canadian drug companies to innovate in the future.
D)eliminating all profit for drug companies.

Question 49

If the U.S. government were to note that because drug companies can sell their drugs in Canada and make a profit at those regulated prices and impose a similar set of regulations in the U.S. this would have the effect of

A)lowering the price of drugs in the U.S.
B)increasing the motivation for U.S. drug companies to innovate in the future.
C)increasing the motivation for Canadian drug companies to innovate in the future.
D)eliminating all profit for drug companies.

Question 50

Between 1986 and 2015, while the general price level increased by 116%, drug prices

A)rose by 55%
B)rose by 136%
C)rose by 268%
D)rose by 552%

Question 51

FDA approval is ______ if the increase in costs to patients (including the increase in deaths)is less than the increase in benefits due to more rapid approval

A)too lax
B)too stringent
C)just right

Question 52

"Restless Leg Syndrome" (RLS)was identified by GlaxoSmithKline in marketing Requip to

A)target a relatively poor segment of the patient population.
B)convince restless people that they might have a curable ailment.
C)shift the demand curve for Requip to the left.
D)all of the options are correct.

Question 53

FDA approval is ______ if the increase in costs to patients (including the increase in deaths)is greater than the increase in benefits due to more rapid approval

A)too lax
B)too stringent
C)just right

Question 54

Economists generally agree that price controls in the U.S. would

A)increase prices to consumers.
B)increase the motivation to invent new drugs.
C)diminish profits to drug companies.
D)increase the motivation to invent new drugs and diminish profits to drug companies.

Question 55

That U.S. drug companies can sell their drugs in Canada and Mexico for much less than they sell them for in the U.S. suggests that the

A)drugs sell for less than their marginal cost in Canada and Mexico.
B)marginal cost of producing the drugs is between the U.S. price and the Canadian price (so on average the company is making a profit).
C)marginal cost of producing the drugs is less than the Canadian and Mexican price.
D)marginal cost of producing the drugs is higher than even the U.S. price.

Question 56

Economists generally agree that price controls in the U.S. would

A)increase prices to consumers.
B)diminish the motivation to invent new drugs.
C)diminish profits to drug companies.
D)diminish the motivation to invent new drugs and diminish profits to drug companies.

Question 57

When a drug ceases to require a prescription it is said to have gone

A)off-the-rack.
B)off-the-wagon.
C)off-label.
D)over-the-counter.

Question 58

FDA approval is ______ if the increase in costs to patients (including the increase in deaths)is equal to the increase in benefits due to more rapid approval

A)too lax
B)too stringent
C)just right

Question 59

A prescription drug price policy that generates deadweight loss implies that the

A)loss to consumers is greater than the loss to firms.
B)loss of firms is greater than the loss to consumers.
C)loss to consumers is greater than the gain to firms.
D)gain to consumers is less than the loss to firms.

Question 60

Economists generally agree that price controls in the U.S. would

A)diminish prices to consumers.
B)increase the motivation to invent new drugs.
C)increase profits to drug companies.
D)increase the motivation to invent new drugs and increase profits to drug companies.

Question 61

In debating whether drug companies have high rates of return or moderate rates of return, economists favoring the drug industry's point of view are that those opposing it overlook one key factor that, if you ignore, leads to an overstated rate of return. It is the

A)opportunity cost of the money invested in the invention and testing of the drug.
B)marketing costs.
C)costs of testing.
D)costs of invention.

Question 62

Which patent would last the longest?

A)One for a drug that has many similar ones in existence.
B)One for a drug that treats a very rare disease.
C)One for a drug that treats a life-threatening disease.
D)One for a drug that treats a very common disease.