Suppose that the government places a ceiling on the price of a medical drug below the equilibrium
Question:
Suppose that the government places a ceiling on the price of a medical drug below the equilibrium price.
a. Show why there is a shortage of the medical drug at the new ceiling price.
b. Suppose that a black market for the medical drug arises, with pharmaceutical firms secretly selling the drug at higher prices. Illustrate the black market for this medical drug, including the implicit supply schedule, the ceiling price, the black market supply and demand, and the highest feasible black market price.
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