Supreme Court Cases

Question 1

Module 24 discusses patents and how they create a barrier to entry. A U.S. Supreme Court case was brought by the US Federal Trade Commission to halt the pay-for-delay tactics sometimes used by pharmaceutical companies to contractually extend the effective patent period of pharmaceutical drugs. The pay-for-delay tactics are more fully described in Federal Trade Commission, “Pay-forDelay: How Drug Company Pay-Offs Cost Consumers Billions”.

A recent Supreme Court outcome is discussed in Edward Wyatt, “Supreme Court Lets Regulators Sue Over Generic Drug Deals”, New York Times, June 17, 2013. (NY Times link)

After reading these articles1 :

1. Explain how a patent creates a kind of monopoly and what benefits a patent conveys to the owner.

2. Explain what happens in a market when patent protection for a technology runs out.

3. Explain the effects of pay–for–delay actions on producers and consumers.

4. Discuss whether pay–for–delay tactics should no longer be allowed, or should continue. Be sure to support your conclusion using economic arguments.

Question 2

1. How would the following events affect the supply of loanable funds curve in each case separately?

a. People’s wealth is higher because of a stock market boom.

b. The future seems depressing, so people expect lower future incomes.

c. People’s disposable income is lower because of a recession.