question archive Use diagrams to show supply and demand for a drug to treat Tuberculosis, assuming a competitive market
Use diagrams to show supply and demand for a drug to treat Tuberculosis, assuming a competitive market
Subject:MarketingPrice:2.88 Bought3
Use diagrams to show supply and demand for a drug to treat Tuberculosis, assuming a competitive market. Show and explain the effect on equilibrium price and quantity of the following:
a) Change in technology that reduces the cost of manufacturing the drug,
b) Introduction of a generic substitute for the drug that offers the same risks and benefits at a lower price,
c) A significant proportion of patients develop drug resistance,
d) An increase in the patient co-payment for all PBS medications.
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a_
If there is a change in technology that reduces the cost of manufacturing the drug that is used to treat tuberculosis, then the producers will increase the supply of that drug and the supply curve will shift rightwards because now the same amount of drug can be produced with lesser cost. Thus, equilibrium quantity of drug will increase and the corresponding equilibrium price will decrease.
_b_
If there is an introduction of a generic substitute for this drug and it is offering the same benefits as well as risks at a lower price, then the demand curve for the drug will fall and shift leftwards as people will shift their consumption towards the substitute good. Thus, in this case, both equilibrium price and quantity will fall.
_c_
If the patients suffering from tuberculosis developed a drug resistance, that means they are resisting the drug and hence decreasing their demand for the drug. This will again shift the demand curve for drug towards left and the result will be the decrease quantity as well as price.
d
The insurance company takes a certain fee from the patients who want to take the doctor's appointment for the treatment of tuberculosis or any other illness. If this fee also called co-payment is increased, though the people have inelastic demand in such a case, but still their demand for appointment will fall and hence the demand for the drug will also fall because it cannot be demanded without the doctor's prescription. Thus, as above, the demand curve will shift leftwards resulting in the fall in both equilibrium price and quantity.
