Economics/social studies

This isn't an example of an invisible hand is it?

A single drug company obtains a patent on a lifesaving drug. The company can charge whatever it chooses for the drug and will not lose customers. Is the invisible hand at work in this scenario?

I say no because the customers what a better value of the drug than charging too much for the drug.

asked by Camilla
  1. I agree with your answer.

    posted by Ms. Sue
  2. Thank You!! Happy St. Patricks Day

    posted by Camilla
  3. You're welcome!

    Erin Go Bragh!! :-)

    posted by Ms. Sue
  4. I disagree. The "invisible hand" has nothing to do with moral precepts.

    The firm is a profit maximizer. It provides a product and changes the maximum amount it thinks it can. People willing to pay the price do so. So the product goes to those people willing and able to pay the highest price. Perhaps immoral, but exactly what the "invisible hand" concept predicts. (Goods go to those folks willing to pay the most).

    Now then, one could argue, the firm is acting as a monopolist and this is a form of market failure where there are some people willing to pay more for a product than it costs to produce. A fair point, I would counter with the invisible hand is working, but not perfectly.

    posted by economyst

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