Drug against a specific health condition.

1. A pharmaceutical company has a patent allowing it to be the only producer of a drug against
a specific health condition. The duration of this patent is fifteen years.
Discuss and explain why this pharmaceutical company is able to charge a price higher than
the marginal cost for this drug. Clearly illustrate the market in which this company operates
in using an appropriate graph of your own. [30 marks]
2. Consider the pharmaceutical company in question 1 above. Fifteen years have passed and
the patent for the drug it had developed has now expired; this means that other firms can
now produce and supply the public with the same drug (called a ‘generic drug’ in this
context).
Discuss and explain how the expiry of the patent affects the market in which the
pharmaceutical company is now operating in.
Assume a new outbreak of the health condition occurs in this setting. What will the
implications be for the price and quantity of drugs sold in the market? Clearly illustrate in
appropriate graphs of your own. [30 marks]
3. “Most of what we do simply comes about rather than being thought about”. Discuss this
statement given the latest evidence coming from the behavioural sciences. Provide
appropriate examples from the literature on how behavioural science can be a useful tool for
businesses and policy-makers alike. [40 marks]