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A market I often hear people complain about is the pharmaceutical market. There’s always arguement over the prices of certain drugs. There is debate over the ethicality of having drugs that cost in the hundreds of thousands of dollars. Putting ethics aside, this large asking price for certain drugs makes sense from an economic perspective and come drug corporations are not necessarily greedy. Many of the most expensive drugs are ones that are in low demand. They are usually used on patients with diseases that aren’t very common.
In these cases, the cost of developing the drug may be enormous. Since there aren’t enough people who demand the drug, companies have to mark up prices in order to break even; however, this logic is not always the case and some corporations do seem greedy. Many drugs in high demand are also priced extremely high. This high asking price is due to price increases not affecting demand. People are going to need their drugs in order to get better.
A price increase does not affect demand because drugs are a necessity. A good example that highlights the desire for profit is that sometimes, larger corporations will purchase the rights to certain drugs from smaller companies just so they can mark up the price and make more money.
The large corporations can scale production a lot better than the smaller companies so the smaller companies are willing to sell the drug. In many cases, the cost of purchasing drug rights and production the drug is much lower than the cost of the actual drug.
The book even mentions that many “blockbuster drugs” make staggering amounts of money. So are pharmaceutical corporations greedy? It depends on the perspective one takes. On one hand, charging high prices can be seen as denying healthcare to low income people and is thus unethical and greedy. On the other hand, some drugs require a lot of work and effort to develop and the company still needs to keep itself running. A third perspective is to look at it from a whole market perspective. The reason drugs can be developed so quickly is because companies know they can make a lot of money from them. Companies also compete fiercely with each other to make better drugs with more that are more effective and minimize symptoms because those drugs will sell. From a this perspective, the greed of corporations may not seem entirely bad simply because it is what fuels the rapid development of drugs. Human nature and the market fuel development. In a way, buyers and sellers can both win. It is the market combined with human greed that drives innovation.
Markets are extremely powerful because it is what drives innovation. The book makes a great point in saying that the only way markets make profit is by delivering goods that consumers demand. Consumers desire for something better, or next generation drives the market to produce better quality products. This desire also gives companies incentive to invest in research and development in order to create new products. In doing so, these companies often create make strides in science and technology. Although their main goal is to make money and produce better product, companies driven by the market also produce scientific knowledge and data that can benefit society. The lack of a free market can hinder scientific development. A good example is the Soviet Union which had a government controlled market. The government would tell producers what to produce and stores what to stock. The problem with this system was that there weren’t any new products that entered the market. Everything the average citizen living in Soviet Russia could buy stayed the same. The only innovation came from government sponsored projects which were often funded for defense purposes which often didn’t benefit the average citizen. With the free market based economy, innovation is much more abundant and science progresses much more quickly. The market is powerful because it propels humanity into the future.
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