Question

Consider a market for some drug, say Antihistamines, which is used to treat some types of allergy symptoms including hives. The market is assumed to be competitive and in equilibrium. If there is an outbreak of hives in the economy, and at the same time government regulation across the entire pharmaceutical industry increased in stringency, but there are no price controls, explain with graphs and in writing, what would happen to the equilibrium price and quantity of this drug.

Answer 1

Consider a market for Antihistamines. The market is competitive and in equilibrium. Now there is an outbreak of hives in the economy, and at the same time government regulation across the entire pharmaceutical industry increased in stringency. So on one side there will be an increased demand for Antihistamines by hospitals, physicians etc and there will be a reduced supply of Antihistamines.due to government's stringency on manufacturers.

This will shift the demand curve for Antihistamines.to the right and supply curve of Antihistamines.to the left. Price rises multiple times from both demand and supply side. Quantity may or may not change depending upon the size of each shift