Two interesting microeconomic stories……….

One) 

Drug Goes From $13.50 a Tablet to $750, Overnight

How could this happen?   The drug, called Daraprim and used for over 60 years to treat diseases caused by immune deficiencies and malaria, was acquired in August by Turing Pharmaceuticals, a start-up company. Turing immediately raised the price to $750 a tablet from $13.50, bringing the annual cost of treatment for some patients to hundreds of thousands of dollars.

Think about what this implies for the price-elasticity of demand for the drug and for the optimum output of the drug.

Turing, on the other hand, justifies the price increase by asserting that the profits will fund research into better drugs. But it should be noted that the cost of producing one tablet is estimated to be about $1:00.

POST-SCRIPT:  A few days later the company announced that it would lower the price of Daraprim to a point that is more affordable and is able to allow the company to make a profit. The final cost was still being determined, but would be less than $750 per pill.

__________________________________________________________________________________________________

Two)

VW intentionally violates clean air standards

The U.S. Environmental Protection Agency stated that Volkswagen intentionally skirted clean air laws by using a piece of software that enabled about 500,000 of its diesel cars to emit fewer smog-causing pollutants during testing than in real-world driving conditions.

This seems to be a case of market failure on two counts……the existence of negative externalities and asymmetric information.

The CEO has resigned, but the scandal will have reverberations not just for Volkswagen but also for the car industry as a whole and for international trade.

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