ECON 162 Chapter Notes - Chapter beg: Zidovudine, Paclitaxel, Congenital Disorder
Economics of Public and Macro Issues
Chapter One
I. Food Drug Administration (FDA)
A. Purpose
1. decide whether or not new medicines should be allowed to go on sale in the
US
a) rule against a drug ā> physicians illegally prescribe even if thousands of
lives are being saved by the drug each year in other countries
B. History
1. Food and Drug Safety Act of 1906
a) required that medicines be correctly labeled as to their contents and that
they not contain any substances harmful to the health of consumers
(1) numerous medicines were banned
2. Food, Drug, and Cosmetic Act
a) forced manufactures to demonstrate the safety of new drugs before being
allowed to offer them for sale
(1) made bc 107 people died from an antibiotic
3. Thalidomide rash
a) birth defect cause bc mothers taking sleep aid in Europe and Canada
b) FDA ordered all of the samples to be destroyed and prohibited
C. The Impact of the 1962 Amendments
1. added a āproof of efļ¬cacyā requirement and removed the time constraint of
the FDA
a) can determine how much and what time of evidence it will need before
approving a drug for sale (can take as long as it wants)
2. more expensive to make a new drug
a) $800 million for each new drug
b) delay receipt of potential revenue and reduced expected proļ¬tability ā>
fewer in the market
3. slowed down approval process
a) average ļ¬ling and approval: 7 months ā> 30 months ā> 10 years
4. Drug lag
a) takes longer for drugs to reach the US than Europe
b) can be life threatening
(1) 5 year lag on antibiotic killed 80,000 in this country
(2) decade lag on heart attack meds killed 250,000
c) azidothymidine (AZT) (treatment for aids) gay men pressured the FDA to
approve the drug quickly
d) Taxol (treatment for breast cancer) received expedited review bc of
pressure from women with history of breast cancer in family
e) how was a formal program where it expedites testing for drugs that seem
relieve people of death or suffering
D. Terrible Trade-Off
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1. lives are saved because unsafe or ineffective drugs are kept off the market
but the regular profess delays/prevents the introduction of some safe and
effective drugs
2. type I error
a) side effects can outweigh the therapeutic beneļ¬ts
b) does little to help the individuals who take it
c) reduced by the added testing
3. type II error
a) cost= pain, suffering, and death bc amendments prevent or delay the
introduction of safe, efļ¬cacious drugs
E. Lessons from the FDA Story
1. every choice entails a cost
a) something must be given up
b) in a world of scarcity we cant have everything- need to give up to get
c) FDA review saves lives by preventing unsafe/ineffective drugs but its $$$
2. the cost of an action is he alternative that is sacriļ¬ced
3. relevant costs and beneļ¬ts are the marginal ones
a) marginal beneļ¬t > marginal cost
4. people respond to incentives
5. things aren't always as they seem
a) pharmaceutical manufacturers want to avoid introducing drugs that are
unsafe or ineffective because the companies can loose their reputation
and lawsuits
b) there would still be a lot of testing without the FDA
c) longer testing ā> people die , quick approval ā> people die
6. policies always have unintended consequences ā> less net beneļ¬ts
F. Opportunity Costs
1. making the drug- people might die, expensive tests
2. not making the drug- don't make money, people might die
Chapter Two
I. The economics of oil spills
A. back ground
1. BP wanted to ļ¬nish the work of the well because it was delayed and millions
over budget
2. contractors not happy with some of the cost-saving measures BP hoped
would seed of the process
a) by 5pm some workers knew that gas was leaking
3. BP decided to remove the drilling mud used to hold back the high-pressure
mixture of gas and oil under the sea ļ¬oor
a) 945pm oil and natural gas began shooting out of the rig
B. who is to blame?
1. BP ā> contractors ā> each other and management
2. outside and inside government ā> ācozy relationshipā that the federal
governmentās Minerals Management Service had with the oil industry
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Document Summary
Chapter one: food drug administration (fda, purpose, decide whether or not new medicines should be allowed to go on sale in the. User pays minimizes the chances that resources will be wasted. 5. long lasting environmental damages: escaped oil still sits on the ocean oor in parts of the gulf > still oil. 1. the extra calories are causing health problems: billion/year spent on obesity related problems, sales of diet books, expensive surgeries, no because its making people do something they don"t want to (gain weight, smoking. 1. taxes increasing > stop smoking > gain weight: net health trade is likely positive because they did stop smoking but they are still gaining weight. A. the economics of safety: safety confers bene ts but achieving it also entails costs, we live longer and more enjoyably but we must give up something to obtain safety.
