Wednesday, November 18, 2009

Ignorant Government Tricks: Economics and the Flu

It appears that officials in some states aren't familiar with the concept of market-driven solutions. Case in point from today's McPaper:

"Some pharmacies are charging three times what others are for a scarce liquid form of the H1N1 drug Tamiflu used by children, USA TODAY has found. At least two states' attorneys general are investigating."

Apparently, "at least two states attorneys general" are clueless: increasing the price of something in short supply is a feature, not a bug. That is, the price increases because there's a shortage, not the other way around. When the cost of something is artificially depressed, the demand goes up, and shortages ensue. In this case, the relatively low cost of the vaccine (the article quotes $43, although I've seen it for much less locally) encourages folks who are at low risk of getting H1N1 (or, if they do, experiencing much difficulty) to get it anyway, reducing the supply available to those who are at-risk. By making the opportunity cost (and, of course, the nominal one, as well) more painful, it alleviates pressure on the supply chain. This is a good thing because more of the vaccine is then available to those truly in need.

It's akin to the price of hotel rooms after a major weather disaster: if rates remain fairly low, some families figure "hey, we'll get two or three rooms so the kids have some space;" this reduces the available supply for those who come in later. Temporarily increasing room rates discourages this behavior. It's basic economics.

Seems like that concept is lost on gummint-types.
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