Under competitive market structure, price is determined by the forces of demand and supply. If the market is not competitive then government intervention is required to settle the prices. Pharmaceutical industry is one of the fastest growing industries in Pakistan dealing with health business. The market of prescription medicine is not very competitive because thecompany holds patent for a medicine and has a market power that’s why pharmaceutical companies charge high prices for medicines. People are bound to purchase the medicines at high prices. Most of the current health reform debate agrees on the need to curtail health care costs. Evidence of price ineffectiveness for health services is found in the huge price variations that can be observed for similar services.
Requirement:
Being a student of economics, analyze the above case carefully and suggest how the government can intervene in the pharmaceutical market to curtail the pricing ineffectiveness. Discuss why people don’t decrease the demand for prescribed medicines in spite of increase in medicine prices.
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