Can an app installed from Play Store being dropped support due to changing requirement in Android version?
App developer (free/paid app) is at complete liberty to support/not support later Android versions, with or without continuing support for earlier versions. You will find many apps not supporting Lollipop or Marshmallow, and on other hand supporting/not supporting earlier versions.
Developers have two choices (nothing is binding), as cited Support Lower Versions of Android as an example, relating to autoback up feature of Marshmallow:
Updating an existing app to support auto backup.
Giving your new app support for lower versions of Android
Google Play Store policy doesn't discuss this, so only inference is that the app will be on Play Store:
- As long as it complies to Play Store policy
- As long as developer wishes
developer decides to drop support for this old version, does the Play store offer an option to refund the payment?
No refund is possible. See this answer for details and also read the comments, which relate to your question If a paid app stops working, can I get my money back?
Edit: An important point of compatibility pointed out by Izzy. I have a paid call recorder app bought 4 years ago, which worked fine but is not compatible with current Huawei phone and developer can't fix it since information about chip set (Kirin ) is not made public by OEM. I can't obviously ask for a refund