ACJC_H2_ECON_P1

©ACJC Preliminary Examinations 2011 H2 Economics 9732/01 1 Answer all questions. Question 1 Research & Development (R & D) Extract 1: The importance of R&D, intellectual works and innovations The importance of R&D, intellectual works and innovations has been much debated in recent years. Software companies develop new programmes and applications for entertainment or professional activities, new and more effective drugs are discovered by pharmaceutical companies and artists write books and songs to entertain their fans. Entrepreneurs would not invest money in innovation if it were not for the prospect of earning large profits. But if an innovation can be copied and reproduced by other firms, the original inventor is unlikely to recover the money invested in creating new products, as the competition by the firms that have “borrowed” their ideas will drive the price down to the marginal cost of production. Given that the social rates of return to R&D are substantially above private rates of return and their paramount importance to foster econo mic growth and increase consumers’ utility, these provide the main justifications for government subsidies to R&D. In an effort to increase their level of innovation, many countri es have turned to fiscal incentives for R&D, often involving substantial sums of taxpayers’ money. Intellectual works have also received protection through intellectual property (IP) laws, in particular in the form of copyrights and patents. IP laws are necessary as ideas, once invented, can be imitated by others. Patents are granted rights provided to manufacturers or innovators in different fields, for example the pharmaceutical industry, to exclude others from making or selling the innovation. These patents usually last for a period of time before it expires. Many countries aim to grant patents only to innovations that were useful and genuinely novel, but many are also struggling to determine which innovations are really worth being patented. Although patents have its drawbacks, one cannot deny the importance of patents to protect one’s innovation. Adapted from How Important is Business R&D for Economic Growth and Should Government Subsidise it? Rachel Griffith, IFS, 2000 Extract 2: Singapore - Drugs not working, biomed still down Anyone holding their breath for the long-awaited rebound in the important but highly volatile pharmaceutical industry could be disappointed. The indications are that the sector – a star performer in recent years – may not provide the much-needed shot in the arm to local manufacturing any time soon. Expiring drug patents, delayed approvals for new treatments and the rise of generic drugs are clouding the industry’s immediate outlook, says the Singapore Government. An MTI statement said the short-term outlook for biomedical output will be weighed down by strong competition from generic drugs and delays in approvals for new pharmaceuticals. The companies t