Suppose a major pharmaceutical company has just created an important new cancer

Question

Suppose a major pharmaceutical company has just created an important new cancer treatment drug. Experts predict that use of the drug will decrease mortality rates in most cancer patients by 30 percent. The company has applied for a patent. Because health insurance companies will only cover 80 percent of the price of the drug, the U.S. government is considering shortening patent length from 17 years to 1 year on this (without compensation) and other new cancer treatment drugs to encourage generic alternatives.

True, False, or Uncertain. Current and future cancer patients will be better off if the patent length is shortened. Explain using the economic theories established in this section.

Include with your written response a brief graph showing the market prices and quantities that would prevail under the patented system versus the market prices and quantities that would prevail without the patented system.

Explanation / Answer

Use of the drug will decrease mortality rates in most cancer patients by 30 percent.

Because health insurance companies will only cover 80 percent of the price of the drug, the U.S. government is considering shortening patent length from 17 years to 1 year on this (without compensation) and other new cancer treatment drugs to encourage generic alternatives.

True, they will be better off as the new inventions will be available in the market or the better treatment.

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