There’s No Mystery Why Drug Prices Are So High

Rep. Katie Porter says lack of competition causes high drug prices. An example is insulin, which is patented and manufactured by three pharmaceutical firms. This is “why we see drug companies being able to engage in price gouging” Porter said.—yahoo.com

Answer the following questions to check your understanding of the story.

Describe the market for insulin.

The market for insulin is ______________.

a) monopolistic competition. A small number of firms produce an identical drug

b) an oligopoly. A small number of firms charge very high prices

c) a monopoly. Three firms produce the same drug

d) an oligopoly. A small number of firms, protected by a legal barrier to entry, compete

Are the three firms that produce insulin engaged in price gouging?

The three firms ______________.

a) are price gouging. They are making unnecessary improvements to insulin so they can raise the price

b) are price gouging because they are making a profit on a life-sustaining drug

c) aren’t price gouging. They are producing the efficient quantity and charging the highest price that consumers are willing to pay

d) aren’t price gouging. They are producing the profit-maximizing quantity and charging the highest price that consumers are willing to pay

There’s No Mystery Why Drug Prices Are So High

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