A life-extending drug is very expensive to produce. The equilibrium price for the drug is very high, such that some people who could benefit from the drug simply cannot afford to buy it. The government is considering a program that would cover 50% of the price of the drug. People who buy the drug would pay half the price, and the government would pay the other half.

(a) Show the effect of this policy on the supply curve, demand curve, or both. (Note: The government pays a percent of the price, NOT a given dollar amount independent of price. That is, the government does NOT pay, say, $100 for each unit sold, no matter what the price of the drug. Rather, the government pays $100 if the price is $200, it pays $150 if the price is $300, and so on. This fact affects the way the curves shift.)

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The policy of the government to cover 50 of the price of the drug will effective... View the full answer