Question

In: Economics

Imposing price ceilings on prescription drugs has pros and cons, at least in the short run....

Imposing price ceilings on prescription drugs has pros and cons, at least in the short run. Some consumers could benefit from price ceilings in the short run.

What will be the long run impacts of price ceilings on quantity demanded and quantity supplied in the market?

Solutions

Expert Solution

in the short run,

One of the most important pro of price ceiling is that it makes the prescription drugs affordable to consumers

So that exploitation of consumers in cases of monopoly like producers is prevented by the government. So pro is that it increases welfare of consumers

Also, price ceilings make fair and competitive markets.

These are usually reserved for socially important goods like in the case of drugs

Short term cons of process ceiling is for the producers as they will get low prices, low profits as there will be decrease in producer surplus and more competition in the marketss

Long run implications --

In the long ru price ceiling has a disadvantage effect

1. Quantity demanded will excess quantity supplied this will create excess demand in the market.

2. Producers will create shortages and indulge in black marketing thus making extra charges to consumers .

3. They will lower the quality of drugs and other unfair markets in order to reduce costs and get benefitts from trades.

4. Dead weight loss is created in the society making the economy inefficient .


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