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For several years, per capita expenditure on prescription

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For several years, per capita expenditure on prescription [#permalink] New post 21 Aug 2012, 23:36
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For several years, per capita expenditure on prescription drugs in Voronia rose by fifteen percent or more annually. In order to curb these dramatic increases, the ministry of health prohibited drug manufacturers from raising any of their products’ prices. Even though use of prescription drugs did not expand after this price freeze, per capita expenditure for prescription drugs continued to increase by a substantial percentage each year. Which of the following, if true, most helps to explain why the ministry’s action did not achieve its goal?

A. After price increases were prohibited, drug manufacturers concentrated on producing new medications to replace existing products
B. The population of Voronia rose steadily throughout the period.
C. Improvements in manufacturing processes enable drug manufacturers to maintain high profit levels on drugs despite the price freeze.
D. In addition to imposing a price freeze, the government encouraged doctors to prescribe generic versions of common drugs instead of the more expensive brand-name versions
E. After price increases were prohibited, some foreign manufacturers of expensive drugs ceased marketing them in Voronia.
[Reveal] Spoiler: OA
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Re: For several years, per capita expenditure [#permalink] New post 22 Aug 2012, 00:24
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A. After price increases were prohibited, drug manufacturers concentrated on producing new medications to replace existing products - Only when costler drugs are released into the market and the older drugs are ceased from market will the per capita expenditure increase - Correct
B. The population of Voronia rose steadily throughout the period. - It is stated that use of prescription drugs did not expand after price freeze which nullifies the account of population increase - Incorrect
C. Improvements in manufacturing processes enable drug manufacturers to maintain high profit levels on drugs despite the price freeze. - Profits on drugs to the manufacturers is irrelevant - Incorrect
D. In addition to imposing a price freeze, the government encouraged doctors to prescribe generic versions of common drugs instead of the more expensive brand-name versions - If this is the case, the per capite expenditure on drugs should fall - Incorrect
E. After price increases were prohibited, some foreign manufacturers of expensive drugs ceased marketing them in Voronia. - Irrelevant - Incorrect
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Re: For several years, per capita expenditure [#permalink] New post 22 Aug 2012, 00:49
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A. After price increases were prohibited, drug manufacturers concentrated on producing new medications to replace existing products ----- This is one way commercial corporations can survive and keep their profits steady. Since new drugs do not suffer price control. Drug manufactures make merry and hay while the sun shines. That is the reason govt. controls most of the times bite the dust


B. The population of Voronia rose steadily throughout the period. ---- Per capita takes into account of the fluctuations and then evens out.

C. Improvements in manufacturing processes enable drug manufacturers to maintain high profit levels on drugs despite the price freeze. ----improvements are not part of the agenda in this topic. We naturally believe that all the possible improvements are already in place. No company will keep improvements at bay, waiting for the price controls to arrive. Using generic versions, should bring down the cost and help reduce per capita prescription drugs figure.

D. In addition to imposing a price freeze, the government encouraged doctors to prescribe generic versions of common drugs instead of the more expensive brand-name versions – The discussion is about expenditure of branded prescription products This is also antithetical, since any use of generic versions, should then help bring down the per capita figure rather than raise

E. After price increases were prohibited, some foreign manufacturers of expensive drugs ceased marketing them in Voronia. availability of expensive or inexpensive drugs do not decide the per capita figure. It is the usage. Hence not relevant.

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Re: For several years, per capita expenditure [#permalink] New post 22 Aug 2012, 03:16
Arbitrageur wrote:
For several years, per capita expenditure on prescription drugs in Voronia rose by fifteen percent or more annually. In order to curb these dramatic increases, the ministry of health prohibited drug manufacturers from raising any of their products’ prices. Even though use of prescription drugs did not expand after this price freeze, per capita expenditure for prescription drugs continued to increase by a substantial percentage each year. Which of the following, if true, most helps to explain why the ministry’s action did not achieve its goal?

A. After price increases were prohibited, drug manufacturers concentrated on producing new medications to replace existing products
B. The population of Voronia rose steadily throughout the period.
C. Improvements in manufacturing processes enable drug manufacturers to maintain high profit levels on drugs despite the price freeze.
D. In addition to imposing a price freeze, the government encouraged doctors to prescribe generic versions of common drugs instead of the more expensive brand-name versions
E. After price increases were prohibited, some foreign manufacturers of expensive drugs ceased marketing them in Voronia.


Per capita expenditure on PD increased annually --> Led govt. to prohibit DMs to raise their product prices.

Though PD did not increase, per capita exp. on PD continued to rise

Possible reasons could be other products that were not banned were introduced in order to make money

Or manufacturers left Voronia and now it had to import the expensive drugs

Maybe their generic drugs were limited and do not meet the needs of its populations.

Looking at the options...only A seems to be the closest to explaining the argument.
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Re: For several years, per capita expenditure [#permalink] New post 22 Aug 2012, 10:59
Thanks for the explanations guys. But doesn't answer choice A assume that the government's price prohibition only applies to existing medications, as opposed to new ones that are introduced? From reading the stimulus, I don't see how we can make that assumption since it says that the prohibition applies to ANY of the drug makers' products.
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Re: For several years, per capita expenditure [#permalink] New post 22 Aug 2012, 11:09
Arbitrageur wrote:
Thanks for the explanations guys. But doesn't answer choice A assume that the government's price prohibition only applies to existing medications, as opposed to new ones that are introduced? From reading the stimulus, I don't see how we can make that assumption since it says that the prohibition applies to ANY of the drug makers' products.


I agree to your logic and this was also the reason I eliminated option A when I started doing the question.

However, after going through all the options, A seems to be the best of the lot (barring the loophole you pointed out).

While I am writing this post, it struck me. How can there be a price increase on new products ? You can set price for the new products and since there is no regulation mentioned regarding the price of new products, it is a possible explanation.
Re: For several years, per capita expenditure   [#permalink] 22 Aug 2012, 11:09
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