Equilibrium price of an essential medicine is too high. Explain what possible steps can be taken to bring down the equilibrium price, but only through the market forces. Also explain the series of changes that will occur in the market.
If the equilibrium price of an essential medicine is too high, then its price can be reduced by opting two ways:
(i) Increase the supply of the commodity.
(ii) Government should provide such essential medicines on. subsidised rates.
But as per the question, option (i) would be most appropriate. Changes that will occur in the market are mentioned below.
In the given figure, it is clearly depicted that due to increase in supply, the supply curve shifts to the right from SS to {{S}_{1}}
{{S}_{1}}. The new supply curve
{{S}_{1}}
{{S}_{1}} intersects the demand curve at point
{{E}_{1}}
The equilibrium price decreases from OP to {{OP}_{1}} and quantity increases from
OQ to {{OQ}_{1}}.
Thus, it is clear that by increasing the supply of the medicines, its equilibrium price can be brought down as by doing so, competition will be increased among the producers and consequently, they would be forced to sell their output at lower cost.
