Monday, February 22, 2016

Chinese Price Ceilings and Prescription Drugs

The Wall Street Journal reports that China will be removing price controls on prescription drugs.  As demonstrated in Prin. of Microeconomics, price controls (price ceilings) result in a decrease in output produced by firms and while they may increase consumer welfare (depending on the impact of the difference between the gains consumers receive from lower prices and the losses consumers face from less consumption); price ceilings are welfare (i.e. economic well-being to society) reducing.  The article above points this out as competition will likely increase due to the removal of price ceilings and thus put downward pressure on drug prices.

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