Basic Microeconomics

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Recommended: Key words when it comes to the rise in the cost of prescription drugs

For the pricing strategies of drugs, the market has seen a trend toward rising prices overall. Part of the rise may be due to the influx of new technology, but overall, the prices are rising at an increasing rate (Chandra). This raises substantial concerns in the health economics community dealing with drug commercialization. Basic microeconomics explains the relationship of supply and demand with the pricings structure of consumer goods. Changes in either supply or demand have an effect on the market or equilibrium price, and a consumer’s decision is majorly based on willingness to pay. Thus, it is necessary to focus on cost reduction to stabilize demand.
A recent case in the market shows the price of a 62-year old drug increasing from $13.50 a tablet to $750 a tablet overnight (Pollack). It treats a parasitic infection for babies, people with compromised immune …show more content…

Through insurance plans, the actual cost to the patient can be lower. However, when patients are responsible for a larger portion of the cost, they are less likely to utilize the health care service (Mattingly).
Overall, these insurers are losing out because they have to cover the cost of the drug or fight for a discount (Pollack). Insurers can either raise the cost of their insurance or limit the coverage of their plans using co-pays or raising deductibles. Looking at who is covering the costs for these drugs, if Medicaid is paying, it is a hit to state budgets, and the money is coming out of taxpayer dollars (Pollack). This threatens the fiscal sustainability of healthcare. Overall, the twisted cost structure of drug pricing demonstrates that the rising prices are due to a variety of factors. By focusing on cost minimization, manufacturers should be able to cover cost of research and development while still charging a reasonable price. By focusing efforts on charging prices that are appealing to both consumers and

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