Having seen the quantity of drugs supplied by pharmaceutical companies in a competitive market, a government decides to force companies to sell exactly the same quantity of drugs at prevailing market prices. The government then forbids additional drug sales and allows doctors to prescribe the drugs at no cost to patients in need. This government scheme is:

A) efficient as the quantity of drugs traded is the same as under a free market.
B) efficient as the price of drugs paid by the government is the same as under a free market.
C) efficient as consumer surplus is maximized.
D) likely to be inefficient as doctors are unlikely to prescribe drugs to the consumers who are willing to pay the most for the drugs.
E) likely to be inefficient as drug producers have a captive buyer.

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Melissa Lalasingh · Accepted Answer

Final Answer : D, Explanation :  EThe scheme is likely to be inefficient because doctors, who are not influenced by market prices in their prescribing decisions, may not allocate drugs to those who value them the most, leading to a potential misallocation of resources (D). Additionally, with the government as a captive buyer, drug producers may face less incentive to innovate or reduce costs, potentially leading to inefficiencies in production (E).

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