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Americans for Tax Reform: IRA Drug Price Controls and Their Impact on Innovation

Article published: October 12, 2023

IB Economics Syllabus: Microeconomics (Market Failure, Government Intervention)

The Oversight and Investigations Subcommittee recently debated the Biden administration’s Inflation Reduction Act (IRA) drug pricing. They expressed concerns over the Democrats’ drug price controls. Representative Morgan Griffith criticized the scheme as “unconstitutional” and compared it to coercive tactics. Specifically, he mentioned a “lack of innovation in pharmaceuticals” and “reduced R&D activity.” The discussion underscored fears that the IRA could stifle pharmaceutical innovation, halt essential drug trials, and harm patients, particularly those with rare diseases.

IB Economics (IA) Commentary Suggestions:

This article delves into the microeconomic concept of government intervention and its effects on the pharmaceutical sector. Consider the impact of price controls on innovation, linking it to market failure, such as monopoly power abuse. For diagrams, think about using a profit-making monopoly (or oligopoly) diagram and another showing government-imposed maximum prices. Highlight the potential disconnect between government policies and the pharmaceutical industry’s needs. The main concept to stress is intervention.

Image source: Christine Sandu on Unsplash

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