Question

When a company holds a patent on a life-saving drug, government would likely reduce incentives for future development if it did any of the following except:

forcing the company to charge a price equal to marginal cost.

purchasing the patent from the company and allowing anyone to make the drug.

establishing an effective price ceiling in this market.

taxing away the positive economic profit earned by the company.

In a market for a fixed amount of tradeable pollution rights an increase in demand would:

raise the price of pollution rights, but leave the quantity unchanged.

induce an increase in the supply of pollution rights.

increase the actual amount of pollution.

all of the above

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Answer 1

a) "B"

Purchasing the patent from the company and allowing anyone to make the drug. By purchasing the patent government will be incentivizing for the loss the company will face if the other company in the market are allowed to produce the drug. In other options, the patent holding company will be the only one facing loss.

b) "A"

As the amount of those rights are fixed the quantity will remain unchanged and the increased demand will increase the price of the pollution.