An editorial in the New York Times discussed whether the federal government should enact regulations that would force firms to accept lower prices when selling pharmaceuticals and medical devices. The editorial notes that European countries that have such regulations “accept a trade-off, inherent in this approach, that the United States has so far resisted: They for go access to certain innovations, like pricey new drugs and medical devices. . . .”
a. Why might price regulations reduce the number of new drugs and medical devices that firms offer for sale?
b. Suppose that you are the economic adviser to a presidential candidate who is trying to decide whether she should support a proposal that Congress impose such regulations on the prices of pharmaceuticals and medical devices. You need to prepare a report discussing the relevant factors the candidate should consider. Use the concepts of opportunity cost and trade-offs to discuss some of the main issues you would include in your report.