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Equilibrium price of an essential medicine is too high. Explain what possible steps can be taken to bring down the equilibrium pirce but only through the market force. Also explain the series of changes that will occur in the market.

Answer» <html><body><p></p>Solution :As medicine is an <a href="https://interviewquestions.tuteehub.com/tag/essential-975317" style="font-weight:bold;" target="_blank" title="Click to know more about ESSENTIAL">ESSENTIAL</a> <a href="https://interviewquestions.tuteehub.com/tag/good-1009017" style="font-weight:bold;" target="_blank" title="Click to know more about GOOD">GOOD</a>, its demand will be perfectly inelastic. <br/> Equilibrium price determined with market forcesof demand and supply is too <a href="https://interviewquestions.tuteehub.com/tag/high-479925" style="font-weight:bold;" target="_blank" title="Click to know more about HIGH">HIGH</a>. <br/> Increase in price will not cause fall in its demand as it is an essential, so government should increase its supply. To increase its supply, the governement should <br/> reduce taxes or <br/> provide subsidy <br/> Due to increase in the supply curve shifts to tis right and the new equilibrium point is <br/> <img src="https://d10lpgp6xz60nq.cloudfront.net/physics_images/MIC_ECO_XI_U04_C11_E01_028_S01.png" width="80%"/> <br/> determined at point `E_(1)`. <br/> It causes fall in equilibrium price from OP to `OP_(1)` and no change in equilbrium quantity (<a href="https://interviewquestions.tuteehub.com/tag/om-585592" style="font-weight:bold;" target="_blank" title="Click to know more about OM">OM</a>) as it is an essential good.</body></html>


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