Scott Grizzard – Personal Website

Did you know that when the government subsidizes drug costs (especially through Medicaid and Medicare), it raises the price for the rest of us? This is why.

Look at a drug under patent. The company producing that drug has a monopoly for the drug, and prices the drug accordingly by setting the quantity where marginal cost equals the marginal revenue.

In the United States, however, the government has responded to political pressure about the high costs of prescription drugs by subsidizing drugs, usually by purchasing large amounts (through Medicaid) or, more recently, subsidizing insurance companies that provide prescription drugs under a Medicare program. This raises the demand for the patented (or orphaned) drug in question. The monopoly chooses to sell more of the drug at a higher price. People who are ineligible for the subsidized medicines are forced to pay a price for the drug that is higher than the price that they would pay if the government did not subsidize the drug.

Clearly, the Drug companies would welcome such purchasing subsidies, and clearly, if a person is not receiving subsidies, then the cost of the subsidy is not only the government outlays of the subsidy, but also the higher price paid by unsubsidized citizens.

How many times have you been late to class because you couldn’t find a parking space? If you are always on time, how much extra time do you need to add to your commute to insure that you can find a spot in time?

Some students on campus have tight schedules between class and work. Others work very late nights and would pay dearly for twenty more minutes of sleep in the morning. These students (I am one of them) are willing to pay more for parking if it meant not searching for twenty minutes for parking.

However, the editorial board of the Oracle seems to be made of another type of student: the type with all the time in the world who prefers to spend money on beer (or whatever) rather than a convenient, available parking spot. (I am referring specifically to the February 6 editorial “University has an obligation to make parking affordable“) There is nothing wrong with those preferences, but those of us with tight schedules should be able to park more easily than those with all the time in the world.

The new parking proposal should make a parking spot a much easier find for time-strapped students. A higher parking fee will mean two things: (1) students who don’t value their time as much (when compared to money) will buy the cheaper, park-n-ride permits, freeing up spaces for those who are willing to pay the higher price because of their time constraints, and (2) more parking garages will be built with the increased revenue.

Until there is parking to spare, the price should be raised. In the short-run, those of us who place a high value on our time will buy the more expensive permits, and have a little more time in our schedules. In the long-run, even those students who prefer beer to time will benefit because parking services will have more money to build parking garages and run buses.

The best solution would be to sell premium parking for specific times near specific buildings (like the gold lots for staff) so that students who are time-crunched could buy expensive passes for their particular class. However, that solution is a little too economically savvy for any bureaucracy.

This article was originally published by the USF Oracle (albeit, in a well-edited and edited well form) as a letter to the editor, on October 6, 2004 titled “Don’t ban freshman cars, create priority spots“.