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Friday, December 08, 2006

Microeconomics quiz of the week

From the WSJ ProfessorJournal.com:
"An unusual clash among officials at the Food and Drug Administration is highlighting a dilemma: The FDA wants to make sure that drugs work before approving them, but it also faces pressure to be flexible and encourage the development of badly needed new antibiotics." The encouragement issue is that the FDA wants more investment by drug makers in antibiotics, but many companies find it unprofitable to do so. Comparing antibiotics and cholesterol-lowering statins for example, the profitability of an antibiotic most likely is lower. An antibiotic used for a day or two is far less lucrative than a statin. Furthermore, powerful antibiotics, which the FDA is calling for the increased manufacture of, are sometimes kept in reserve for the most serious cases, which further diminished their commercial value. Taking into account the lower economic icentives of developing antibiotics and the importance of them, the issue is whether the FDA should reduce the trial standards of finding the efficacy of the drugs.

QUESTIONS:

1.) What are the benefits of the FDA's reduction of drug trial standards? What are the costs?

2.) Why is it more profitable for pharmaceutical companies to develop cholesterol-reduction drugs than to develop antibiotics?

3.) Should the federal government continue to implement stringent drug trial standards, and alternatively subsidize the R&D of antibiotics?

Reviewed By: James Dearden, Lehigh University

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