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The state places a very low price for the sale of an essential medicine, which is lower than the price of the imported ingredients used to make that medicine. What, according to the author, - Legal Reasoning

MCQ
True or False

Last week, the government used the Drug Price Control Order, 2013, to increase the price ceiling for 21 medicines by as much as 50% to ensure their availability in the market. This is a welcome move because lower prices would have further limited the availability of these drugs, some of which include those used for malaria, leprosy and allergy. The decision by the regulatory authority – usually known to reduce prices of essential drugs – was prompted by repeated petitions by the pharmaceutical industry, which pointed out that the increasing cost of imports had made the production of some of these drugs unviable. Prices of bulk drugs and active pharmaceutical ingredients have, in fact, gone up by up to 88%, and are largely imported. 

This raises a basic question: Should the government control prices? The motivation for controlling drug prices is not very difficult to understand. Unlike some of the developed countries, where most of the population has insurance coverage or medical facilities are provided by the state, medical expenses in India are borne by citizens, largely through out-of-pocket expenses. Therefore, the state intervenes by keeping prices of some drugs in check to contain such spending. However, the unintended consequence is that it affects the supply of drugs and can potentially make citizens worse off. The risk of non-availability was an important reason for raising prices. Although all pharmaceutical companies may not stop producing drugs with price control, they may limit the supply. Further, the government usually dithers on price hike because of political considerations so that it is not accused of favouring private companies.

Thus, the government should stay away from dictating prices and allow the market to function. Competition in the marketplace will ensure that no company is able to make extraordinary profits in basic and essential drugs. Since the state has limited resources, it should focus on regulation, and ensure that the quality of drugs supplied in the market is not compromised at any point. 

The state places a very low price for the sale of essential medicine, which is lower than the price of the imported ingredients used to make that medicine. What, according to the author, would be the effect of setting such a low price? 

Options

  • The low price would result in people thinking the medicine is not good, and they would not use it.

  • Companies supplying the ingredients for the medicine would lower the prices of their products.

  • People would buy more health insurance policies so that they do not have to pay for essential medicines.

  • The low price would restrict the availability of the medicine in the market, since pharmaceutical companies may not want to manufacture or import the medicine and sell it at that price.

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Solution

The low price would restrict the availability of the medicine in the market, since pharmaceutical companies may not want to manufacture or import the medicine and sell it at that price.

Explanation:

The correct answer is – the low price would restrict the availability of the medicine in the market, since pharmaceutical companies may not want to manufacture or import the medicine and sell it at that price. This option is supported by the first paragraph, which describes how pharmaceutical companies have pointed out that the increasing costs of imports have made the manufacture of certain drugs unviable since ingredients are usually imported. The author does not discuss the pricing policies of the manufacturers of ingredients of medicines, and so, 
'Companies supplying the ingredients for the medicine would lower the prices of their products. ' cannot be correct. Neither is there any information in the passage to support 'People would buy more health insurance policies, so that they do not have to pay for essential medicines' as the correct answer.

Concept: Legal Fundamentals and Terms (Entrance Exams)
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