Suppose that a new drug has been approved to treat a life-threatening disease. The demand for that drug is shown on the accompanying graph. Prior to approval of this drug, the only treatment for this condition was any one of several non-prescription, or over-the-counter, pain relievers. The demand for one brand of the several non-prescription pain relievers is also shown on the graph. A likely reason for the difference in the slopes of the demand curves is that:
A)the over-the-counter pain reliever has many substitutes, but the new drug does not.
B)one drug is new on the market, but the other has been available for a long time.
C)one drug is heavily regulated by the Food and Drug Administration and the other is not.
D)one market is in equilibrium and the other is not.

Question

Suppose that a new drug has been approved to treat a life-threatening disease. The demand for that drug is shown on the accompanying graph. Prior to approval of this drug, the only treatment for this condition was any one of several non-prescription, or over-the-counter, pain relievers. The demand for one brand of the several non-prescription pain relievers is also shown on the graph.  A likely reason for the difference in the slopes of the demand curves is that:
A)the over-the-counter pain reliever has many substitutes, but the new drug does not. 
B)one drug is new on the market, but the other has been available for a long time. 
C)one drug is heavily regulated by the Food and Drug Administration and the other is not. 
D)one market is in equilibrium and the other is not.

Quizplus · Accepted Answer

The over-the-counter pain reliever has more substitutes. Thus, its price elasticity of demand is higher.

Suppose That a New Drug Has Been Approved to Treat