Ba201 Microeconomics Module 7 Assignment

BA201 Microeconomics

25 February 2014

Assignment 8

The New York Times reported that the FDA was holding a hearing to scrutinize the way prescription drugs are marketed to consumers in advertisements. Critics, like then-Senator John Edwards, claimed that drug companies were creating a false impression by touting their drugs’ benefits without giving equal attention to their side effects. ‘‘Senator Edwards thinks it’s misleading for an ad to show a woman running through a field while the fine print says ‘may cause serious side effects,’’ said Michael Briggs, the senator’s press secretary. ‘‘The F.D.A. should require drug manufacturers to provide fair and balanced information about a drug’s risks as well as the potential benefits.’’ (Ives, Nat, “ F.D.A. ponders pros and cons of the ways prescription drugs are promoted to consumers.” New York Times September 29, 2003, late ed.)

The hearing, which lasted for two days, was held in Washington, D.C. All comers were permitted to present original research at the hearings.

1. Consumers stand to benefit from more accurate and informative advertising. Accept, for the sake of argument, that the advertisements do create a false impression. Pharmaceutical companies, publishers, and broadcasters have an interest in maintaining the status quo. Imagine these groups (consumers and the relevant industries) as opposing armies. Based on the theory of public choice and political equilibrium presented in Chapter 14, which side of this issue is likely to assemble the stronger force? Explain. (20 pts.)

If the advertising is creating a false impression then the bureaucrats as the producers will implement increased utility in correcting the misinformation. Consumer groups are far more powerful than the relevant industries when they can show that the relevant industries are not credible on the matter. The political equilibrium would be reached if all the choices are compatible, in this case the relevant industries could withdraw the...