Answer to Question #137656 in Microeconomics for Brianna Burgos

Question

2. A life-extending drug is very expensive to produce. The equilibrium price for the
drug is very high, such that some people who could benefit from the drug simply
cannot afford to buy it. The government is considering a program that would cover
50% of the price of the drug. People who buy the drug would pay half the price,
and the government would pay the other half.

(a) Show the effect of this policy on the supply curve, demand curve, or both.
(Note: The government pays a percent of the price, NOT a given dollar amount
independent of price. That is, the government does NOT pay, say, $100 for
each unit sold, no matter what the price of the drug. Rather, the government
pays $100 if the price is $200, it pays $150 if the price is $300, and so on. This
fact affects the way the curves shift.)

Answer 1

Economic growth is measured by changes in a country's Gross Domestic Product (GDP) which can be decomposed into its population and economic elements by writing it as population times per capita GDP. Expressed as percentage changes, economic growth is equal to population growth plus growth in per capita GDP.

Thus, the key to the long-run relationship between changes in the rates of GDP growth and unemployment is the rate of growth in potential output. ... Only as long as GDP growth exceeds the combined growth rates of the labor force and productivity (potential output) will the unemployment rate fall in the long run.