What a Difference a Day Makes
Subject Supply
Topic Supply and Demand
Key Words Market, companies, development, manufacturing, consumers, subsidize, research and development, costs
News Story

Until September 11, 2001, there was no significant market for bio-terrorism products. Companies were reluctant to make something that probably was not going to be used. In any case, vaccine development was difficult and expensive. Manufacturing problems were common. Liability was an issue, especially as healthy people could suffer from side effects. Unfortunately, the lack of interest in vaccines led to a reduction in major vaccine producers from 12 to 4 over 15 years.

But now, American consumers are seeking treatments or preventive measures to deal with chemical or biological attacks. Prescriptions for Cipro, made by Bayer, which treats anthrax, have increased rapidly. The drug is on back order now. Several biotech firms are seeing opportunities to develop drugs to fight anthrax, dengue fever, microbes, and smallpox. The federal government may subsidize research and development costs.

However, new vaccines against anthrax, smallpox, and other bio-warfare agents are a long way off. For example, under government pressure, 40 million doses of a new formulation of the smallpox vaccine have been promised by 2002, but some doubt that a plant can be running in time.

(Updated November 1, 2001)

1. Draw a price-quantity diagram of the supply of bio-terrorism vaccines prior to September 11, 2001.
a) What was the effect of high development costs on the supply curve? Illustrate on your diagram.
b) What happened to the supply curve due to the lack of consumer interest in vaccines? Depict the effect on your diagram.
c) What effect did the decline in the number of producers have? Illustrate.
2. Following the September 11 attacks, the market for vaccines changed. In a new diagram, show the effect of:
a) government subsidies that reduce research and development costs
b) expected higher prices for vaccines relative to other drugs
c) improvements in the technology used to produce drugs
d) the increasing appetite of consumers for vaccines.
3. The new smallpox vaccine may take some time to be delivered to market.
a) What general slope is the supply curve likely to have this year?
b) How will it be different next year?
c) In terms of economics, how would you explain the difference?
Source Julie Appleby, "Fears put focus on biotech companies," USA Today, October 10, 2001.

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