Question

Suppose that the government decided to reduce pharmaceutical patent protection by requiring companies to sell their drugs at marginal cost. What are the likely consequences of such a policy?

A. There would be an increase in consumer surplus.
B. The deadweight loss in the market would decline.
C. The future supply of new drugs would decrease.
D. All of these statements are correct.

Answer 1

The likely consequence of reducing pharmaceutical patent protection by requiring companies to sell their drugs at marginal cost would be an increase in consumer surplus, a decline in deadweight loss, and a decrease in the future supply of new drugs.

Step-by-step explanation:

The likely consequence of reducing pharmaceutical patent protection by requiring companies to sell their drugs at marginal cost would be that all of these statements are correct. There would be an increase in consumer surplus because drugs would become more affordable, leading to higher overall satisfaction for consumers. The deadweight loss in the market would decline because the lower prices would lead to increased demand and a more efficient allocation of resources. However, the future supply of new drugs would likely decrease because pharmaceutical companies would have less incentive to invest in research and development due to the lower potential for profits.