The Influence of Economic in Society - Case Study Example

Running Head: Economics in Society Economics in Society By _______________________ Increase in the price of the drugs is just a way the government of India wants to bring much of the revenue perhaps through taxation of various vendors and pharmaceutical industries, but there are many issues related to the people of India. The balance between the supply and demand should now be kept in mind because previously an individual might have bought the drug cheaply on the doctors prescription but now he would think twice before buying specially if the person is belonging to the lower segment which is so common in India. The issues are not just limited to the supply and demand of major medicines but quite surprisingly, many of the south-east Asian countries follow unethical practices, such as buying of drugs without proper prescription from the doctor and people buying them at their own knowledge as they might just be use to of using the similar medicine again and again. This time the customer would think again and again before buying the medicine. On the other hand, due to much improved drug's quality, the pharmaceutical companies would have to do some more investment and also there is a possibility that they would outsource or even import the foreign material for usage, which means that they now would have to make the foreign payments resulting in a lot of local currency going out of the money cycle. The possibility is again that the country would get a bit unstable and if someone who would then be responsible to keep the country's economy stable then it is the people living there. People would now be forced to take any measures to buy those medicines that are at least prescribed by the doctors for serious patents. India although have controlled their growth rate but the deceases are growing commonly in the South-east Asia, and this is the part by which the Indian planners might have thought about increasing the prices and to bring much of the currency from the savers to the deficit spending units. India is basically a poor country, the average income there is just about $70 a month. It can now clearly show us what the country is about. The country is already not doing well on those medicines prepared by the local pharmaceuticals being operated there and if they would now be asked to product fine quality medicines that are just having their own name and are according to the international standards, then it does require India to invest even more in bringing those structures and processes that could make the international standard products. The documentation work would also be their and the overall investment would be far more that companies would merely have a breakeven point within even 5 years. The decision taken by the Indian government might just be in relation to their modernization but it has got no real concerns as the majority in India is yet living below poverty line. The question which is related to the people around the world getting deprived to use the cheap drugs might not be as valid as the people living in India would be deprived to use the cheap drugs. The simple answer to that is due to the much poor outcome of any such strategy, the global companies manufacturing patented material would criticize any such law and so the law enforcing governments would move against any such law. After all, human life has got more value than any of the law and the concerns are directly related to the saving of human life and not the cheaper drugs. Since in that case, the majority of people would not even be able to use the drugs, then they cannot expect to live longer and there when the problem arises causing human lives. Lets talk about the real world case in which the demand is never equal to supply. Always there would be greater deviations in the market and somehow both, supply and demand would get disturbed, of course it is unintentional but that is inevitable as a consequence of which we have to keep the constraints and solutions in mind. Imagine if the world is consuming what has been given to them, the world is being operated on daily basis, such as a limited amount of food is prepared daily and in order to prevent the food from getting stale, people consume every unit of it, is it possible Of course there is no chance for such situation, so we have to consider even bigger policies for production and consumption, may be we can use the past records of what is the optimal level of production and consumption or at which particular level firms are having maximum profit and minimum loss. We now have to consider the importance of the circular flow or economic cycle, the market system heavily relies on the supply and demand to solve the three major arising problems that are What goods and services will be produced, it is determined by the daily purchasing decisions of the customers as keeping it on the yearly basis can be very risky, one can see that over the past few years the bird flue took place significantly, therefore we cannot rely on yearly basis as the behavior of consumers can change unpredictably. The second problem is How things or goods produced would be rated in terms of pricing, of course there is a competition everywhere, so the problem of differentiating the product arises. Taking the example of bird flue there are many other issues that are very common in every day life such as at times there is drastic change in the technological market, such as everyday a new computer technology replaces the old one which eventually results in greater competition and brand switching. The third issue is For whome things are produced, here the focus is obviously on consumers and their level of consumption, but supply and demand has a major role to play here. The immediate task the companies have to face is to determine the wages, land rents, interest rates and many factors related to everyday life. The circular flow is all based on the previously discussed three problems. What the flow intends to show is that all the money is constantly moving within a frame of a country, there are minor changes but over all the flow is constant until and unless some big change takes place such as war. The circular flow is all comprised of four things, those are product markets (prices are set by the markets keeping in view the scenario), Household markets (the buyer behavior which keeps on shifting but over all the money utilization and spending is unchangeable), the business sector (which pays the rents and wages to the people working, who are also at the same time are households) and the factor markets (which keep on changing the rents, wages, interests but over all the wealth remains within the country, if less rent for one person may be much higher for another person). Until and unless these problems would not be solved which of course cannot be solved the firms would find it impossible to be operated at an optimal level and therefore, the drugs cannot be equaling the demand even if they are distributed free with limited constraints. "Dollar votes of households interact with business supply in the product markets at top, helping to determine what is produced. Further, business demand for inputs meets the public's supply of labor and other inputs in the factor markets to help determine wage, rent and interest paymens; income thus influence for whom goods are delivered. Business competition to buy factor inputs and sell goods most cheaply determines how goods are produced"(Samuelson, Nordhaus 30: 1998). The biggest arising problem that India can potentially face is that once they install all the systems and bring out all the technology from the foreign to manufacture those enhanced medicines and then suddenly the people stop buying those medicines due to the increased prices, the government of India might then be facing a double loss. Firstly many important lives of people facing diseases and on second thoughts they would now have to reduce their costs and bring them back to the old pricing structure which would result in the further loss they would be incurring in replacing the new systems by the older ones and of course in such case they have initially faced the loss by installing the new systems. Lets now discuss couple of more important issues related to the changing of the pricing structure and the competition. Price Discrimination. The problem here is first to discover differential demand elasticities, and secondly to arrange for sale in such a way as to preclude reselling. Users with highly elastic demands which purchase the item at a low price must not be able to service inelastic demand customers by acting as a middleman; all sales must be final, until and unless they are being sold on the company stated price. Although vertical integration may facilitate the discovery of differential elasticities, it is mainly with respect to the non-resale condition that it is regarded as especially efficacious. Integration, nevertheless, is a relatively extreme response. Moreover, price discrimination is clearly practiced in some commodities without recourse to vertical integration (witness electricity and telephone service). What are the distinguishing factors Legality considerations aside, presumably it is the cost of enforcing (policing) terms of the contract that are at issue. Some commodities apparently have self-enforcing properties, which may obtain on account of high storage and repacking costs or because reselling cannot be arranged inconspicuously. The absence of self-enforcing (policing) properties is what makes vertical integration attractive as a means of accomplishing discrimination. Entry Barrier Effects. That the vertical integration of production might be used effectively to bar entry is widely disputed. One of the economists argue, "in general, if greater than competitive profits are to be made in an industry, entry should occur whether the entrant has to come in at both levels at once or not. I know of no theory of imperfections in the capital market which would lead suppliers of capital to avoid areas of higher return to seek areas of lower return." But the issue is not one of profit avoidance but rather involves cost incidence. If borrowers are confronted by increasingly adverse rates as they increase their finance requirements, cost may not be independent of vertical structure. The firm is more than a production function; it is also a governance structure. Thus, I aver that the firm "possesses coordinating potential that sometimes transcends that of the market" and that "the properties of the firm that commend internal organization as a market substitute . . . fall into three categories: incentives, controls, and . . . inherent structural advantages". The firm, for example, has differential access to fiat for purposes of dispute resolution and to exercise command and control more generally. Because firms supplant markets selectively rather than comprehensively, there is a need to ascertain the limits of firms. I ascribe these limits to bureaucracy, which places a differential burden on hierarchy. Also, the attributes of transactions that support self-enforcing contracts hence operate to the advantage of markets need to be worked up. More generally, the need is to work out the trade-offs that characterize firm and market organization, as these vary with the attributes of transactions. (Operationalization took a decade and more and the combined efforts of many scholars). In the light of all the discussion that has been provided, we can clearly view what problems the Indian government might go through after any such installation of system. India, right not is viewing herself as a modernized state, which is unfortunately not as valid as the fact that they have to work on the base structure so that the entire structure could build up. Elimination of all the prevailing issues such as poverty, unemployment and illiteracy could make India a modern state after some time, it would then be much considerable to ask for having high quality non patented products, but right now it could bring a disaster in India's economy, they should prohibit to do so. Reference Carroll G.R, "Firms, Markets, and Hierarchies: The Transaction Cost Economics Perspective", New York: Oxford University Press, 1999. Samuelson P.A, Nordhaus W.D, "Economics" (n.p.): 1998. Read More