Question 1

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

Accepted Answer

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

Question 2

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

Accepted Answer

A) FAC 
B) FABE 
C) EBC 
D) P2AC 
A) FAC 
B) FABE 
C) EBC 
D) P2AC

Question 3

-In Figure 26.1, the price under perfect competition is

Accepted Answer

A) A 
B) P1 
C) P2 
D) F 
A) A 
B) P1 
C) P2 
D) F

Question 4

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

Accepted Answer

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. 
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 5

Drug companies tend to attribute higher drug prices on

Accepted Answer

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. 
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 6

The main reason why monopoly governs prescription drugs is

Accepted Answer

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. 
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 7

Between 1986 and 2015 prescription drug prices rose

Accepted Answer

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. 
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 8

Drugs that are labeled "orphan drugs" are

Accepted Answer

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. 
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 9

A patent is a legal device which prevents

Accepted Answer

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. 
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 10

Monopoly power exists in drug inventions because of

Accepted Answer

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

Question 11

A patent

Accepted Answer

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. 
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 12

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

Accepted Answer

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. 
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 13

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

Accepted Answer

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. 
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 14

Which patent would last the longest?

Accepted Answer

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. 
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.

Question 15

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

Accepted Answer

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. 
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 16

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

Accepted Answer

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

Question 17

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

Accepted Answer

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

Question 18

The demand curve for AIDS drugs is likely to be

Accepted Answer

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

Question 19

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

Accepted Answer

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

Question 20

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

Accepted Answer

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. 
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.

Exam 26: The Economics of Prescription Drugs

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

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

-In Figure 26.1, the price under perfect competition is

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

Drug companies tend to attribute higher drug prices on

The main reason why monopoly governs prescription drugs is

Between 1986 and 2015 prescription drug prices rose

Drugs that are labeled "orphan drugs" are

A patent is a legal device which prevents

Monopoly power exists in drug inventions because of

A patent

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

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

Which patent would last the longest?

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

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

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

The demand curve for AIDS drugs is likely to be

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

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

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