A prescription drug price policy that generates deadweight loss implies that the

Question

Quizplus · Accepted Answer

Deadweight loss occurs when the social welfare is reduced due to a deviation from the efficient equilibrium. In this case, the prescription drug price policy creates a loss in consumer surplus, as they have to pay a higher price for the drug. On the other hand, firms may also experience a loss as consumers may switch to using substitutes or decrease their demand for the drug, resulting in lower profits. However, if there is deadweight loss, it means that the gain to consumers (from using the drug) is less than the loss to firms (from reduced demand or decreased profits). Therefore, the best answer is D - the gain to consumers is less than the loss to firms.

A Prescription Drug Price Policy That Generates Deadweight Loss Implies