Evaluate the size of consumer surplus

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Assignment:

The monthly demand curve for a drug is Q= 4000 (in grams) regardless of the price of this drug. A cancer patient must take at least the prescribed amount of this medicine (4000 grams) per month otherwise he/she cannot survive. The supply curve for this drug is P=3000+0.5Q

(i) Calculate the equilibrium price and the equilibrium quantity in this market.

(ii) Explain by using a diagram how the demand curve for this drug differs from the usual demand curve that follows the law of demand. Discuss whether you agree with the following statement: "the price elasticity of demand for this drug is infinite."

(iii) Evaluate the size of consumer surplus and producer surplus by using the same diagram in the above question Q1(c)(ii). If you believe that the exact size of a certain surplus cannot be calculated, then you must explain the reason(s).

Reference no: EM133564086

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