Question

1. Suppose that licensure requirements become more stringent so that fewer physicians will be able to practice medicine. What would happen to the supply curve for physician services? Explain.

2. Suppose that there is a high demand for a new diet drug on the market. What would happen to the supply of the drug?

3. In each of the following situations state whether the supply curve (you should identify the relevant sully) will shift or remain the same. If the curve shifts, state whether it shifts to the left or right. Finally, state whether the equilibrium price increases, decreases, unchanged or uncertain.

i. there is a huge fall in the price of an important ingredient in the production of insulin.

ii. Tylenol pain killers, a direct competitor to Alive pain relievers, see a drastic fall in price because of new technology (i.e.: price of Tylenol painkillers falls)

iii. more pharmaceutical companies start producing insulin.

iv. "Flu season" leads to increased demand for flu shots.

v. government bears 20% of the cost of insulin.

vi. medical schools drastically improve the skills-set of doctors

Answer 1

Ques1-

Ans1-When the licensure requirements become more stringent so that fewer physicians are able to practice medicine,the supply decreases because less physicians enter the market and it leads to a leftward shift in the supply curve.This happens beacause it becomes difficult for the licence seekes to get into the practice of medicine.

Ans 2-When there is a high demand for the new diet drug on the market it creates a situation of excess demand at the old equilibrium price which leads to competition amongst the buyers as a result price increases which leads to rise in supply.And these changes continues till the new equilibrium is established.

Ans3-(i) When there is a fall in the price of an ingredient used in the production of insulin the supply increases.This is because when the price of input decreases the cost of production decreases.The supply curve shifts righwards and the price falls because it creates a situation of excess demand which leads to competition among sellers that reduces the price.

Ans (ii)-When the price of Tylenol pain killers and Alive pain relievers fall due to change in technology the supply increases and shifts rightwards because technological changes influence the supply of a commodity.When their is an improved technology the cost of production decreases which increases the profit margins.It induces the seller to sell more.

Ans(iii) When more pharmaceutical companies enter the market i.e start producting insulin the supply increases because there are more number of producers producing that commodity and it shifts rightwards.This leads to competition among sellers which reduces the price.

Ans (iv)-When flu season leads to increase in demand it increase in demand for flu shots it creates an excess demand at the old equilibrium price.This leads to competition among the buyers that as a result increases the price and increase in price leads to rise in supply.And the new equilibrium is established.

Ans(v)-When government bears 20% of the price of insulin it increases the supply and shifts the curve rightwards because it becomes profitable for the firms to supply more.This will increase the price received by the producers and decrease the price paid by the consumers.

Ans(vi)-Due to improve in skills it will lead to rise in supply-a righwards shift because of improvement in the management of skills.This will create excess supply and competition among sellers that will reduce the price.