question archive Imagine an illness with two-cures — drug X and drug Y
Imagine an illness with two-cures — drug X and drug Y
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Imagine an illness with two-cures — drug X and drug Y. Drug X and drug Y are both made by the same firm.
Two events recently happened. First, a study was released showing that drug X is less effective than drug Y. Second, the ingredients used to produce drug X increased in price. What are the consequences of these events?
a. The demand for drug X shifts to the right, and the supply of drug X shifts to the left. The result is a rise in the equilibrium price for drug X and a fall in the equilibrium quantity of drug X.
b. The demand for drug X shifts to the left, and the supply curve for drug X shifts to the left. The result is a rise in the equilibrium price for drug X and a fall in the equilibrium quantity of drug X.
c. The demand for drug X shifts to the left, and the supply curve for drug X shifts to the left. The result is an unknown change in the equilibrium price for drug X and a fall in the equilibrium quantity of drug X.
d. The demand for drug X shifts to the right, and the supply curve for drug X shifts to the left. The result is unknown change in the equilibrium price of drug X and a fall in the equilibrium quantity of drug X.
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Imagine an illness with two-cures — drug X and drug Y. Drug X and drug Y are both made by the same firm.
Two events recently happened. First, a study was released showing that drug X is less effective than drug Y. Second, the ingredients used to produce drug X increased in price. What are the consequences of these events?
c. The demand for drug X shifts to the left, and the supply curve for drug X shifts to the left. The result is an unknown change in the equilibrium price for drug X and a fall in the equilibrium quantity of drug X.
The news about drug X being less effective should shift its demand to the left. At the same time, ingredient prices rising should shift the quantity supplied upward (to the right). The two changes together shift the quantity downward. But the price is indeterminate.
