Question

Advances in research and development in the pharmaceutical industry have enabled manufacturers to identify potential cures more quickly and therefore at lower cost. At the same time, the aging of our society has increased the demand for new drugs. Construct a supply and demand diagram of the market for pharmaceutical drugs. Illustrate the impacts of these developments, and evaluate the effects on the market price and equilibrium quantity.

Short answer

Supply increases and demand increases as well. Equilibrium quantity is going to rise regardless of the proportional changes. Determination of market price depends on the proportion of these increases.

Step-by-step solution

Step1. Given information

Cost of production decreased.

Demand increased.

Demand is the amount of goods required or asked by the people in that economy.

Supply is the amount of goods given or available in an economy.

Step2. Explanation

Since, there are advancements in the research and development, drugs are now produced at lower costs and hence, supply increases in the market.

Demand increases too as mentioned in the question.

Equilibrium quantity is going to rise regardless of the proportional changes. Determination of market price depends on the proportion of these increases.

Step3. Graphical representation

Increased quantity and market price.

Increased quantity and reduced market price.

Increased quantity and same market price.