South-Western EconNews

Aid for AIDS

Subject

Comparative statics

Topic

Equilibrium

Key Words

Prices, cost, funding

News Story

At the 14th International AIDS Conference in Barcelona, Spain, a panel of former heads of state, including Bill Clinton, discussed the role of political leadership in the fight against AIDS. Mr. Clinton said that drugs that make it possible to live with AIDS and those that can prevent the transmission of the AIDS virus from infected mothers to babies through breast milk would be critical in the developing world.

As $10 billion a year is needed to control the pandemic, Mr. Clinton proposed how drugs might be made more affordable for developing countries. He recommended that countries first try and negotiate lower prices with the drug companies. Recently, the 15-nation Caribbean Community has cut a deal for affordable drugs. Alternatively, countries could approach Brazil and India, which are providing generic versions of the drugs. Second, the developing nations need to figure how much of the cost that they can pay, and approach the rich nations for funding for the remainder and also for prevention. He felt that this strategy would make it easier for the rich nations to agree to contribute.

(Updated October 10, 2002)

Questions

1.	a) Draw a supply and demand diagram of the market for AIDS drugs in the developing world, marking the reigning equilibrium price and quantity. Shade in the area representing the cost of AIDS drugs. b) As the number of people with AIDS increases, what happens to the equilibrium price and quantity of drugs and to the amount of money spent on the drugs? Illustrate on your diagram.
2.	In further diagrams, show what would happen to the equilibrium and the amount spent on drugs by developing nations if: a) the drug companies were to agree to supply each quantity of drugs at a lower price. b) the rich nations were to agree to pay for a proportion of the total cost of the drugs.
3.	Mr. Clinton also suggested asking for money for preventing the spread of AIDS. If prevention efforts were successful, what would happen to the equilibrium price and quantity of AIDS drugs, and to the amount spent on them? Illustrate in another diagram.
4.	Why would the rich nations be more willing to contribute to the cost of AIDS drugs if developing countries had approached the drug companies first and if they asked for money for preventive activities? Refer to your diagrams.

Source

Emma Ross, "Clinton pushes for AIDS drugs," USA Today, July 12, 2002..