After the patent runs out on a brand name drug, generic drugs enter the market. What happens next in the market?
A)Price increases, and total surplus decreases.
B)Price decreases, and total surplus decreases.
C)Price decreases, and total surplus increases.
D)Price increases, and total surplus increases.

Question

Quizplus · Accepted Answer

When generic drugs enter the market after the patent on a brand name drug expires, the competition increases, leading to a decrease in prices. This price decrease increases the quantity demanded, resulting in an increase in total surplus. Therefore, option C is the correct answer.

After the Patent Runs Out on a Brand Name Drug