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Price Controls and Cancer Drug Shortages

November 2, 2011 1 comment

The press has reported on the fact that many cancer patients are having difficulty in getting drugs that are needed for the treatment of cancer. The Los Angeles Times has a recent story about the problem but, to an economist, the interesting part of the story is that the LA Times points out that, in 2003, the federal government imposed price controls in the market for these drugs. As any student of introductory economics should know, price controls can lead to shortages.  This fact was illustrated in Part II of my series on economic aspects of Obamacare.  By not allowing the price of a product to clear the market, the result may be a divergence between the quantity that buyers want and the quantity that sellers wish to sell.  It seems quite likely that this intervention by the federal government has a role to play in this drug shortage.

To an economist, price controls are always a bad idea. In the case of this cancer drug shortage, this mistake by the government may well result in the loss of life that need not occur if the market is left to work without these price controls.

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