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. If the manufacturer of the new drug chose to increase its price from $30 to $35, consumers would buy ________ doses, and have ________ total expenditures.
A)more; higher
B)fewer; lower
C)more; lower
D)fewer; higher

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.  If the manufacturer of the new drug chose to increase its price from $30 to $35, consumers would buy ________ doses, and have ________ total expenditures.
A)more; higher 
B)fewer; lower 
C)more; lower 
D)fewer; higher

Quizplus · Accepted Answer

In the lower half of a linear demand curve, demand is inelastic with respect to price. Thus, a price increase will increase total expenditures while reducing quantity demanded.

Suppose That a New Drug Has Been Approved to Treat