Suppose that a new drug has been approved to treat a life-threatening disease. The demand for that drug is shown on the graph below. 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. At a price of $15 (the price at which the two demand curves intersect), the price elasticity of demand for the new drug is ______ the price elasticity of demand for the over-the-counter pain reliever.
A)greater than
B)less than
C)the same as
D)the reciprocal of

Question

Suppose that a new drug has been approved to treat a life-threatening disease. The demand for that drug is shown on the graph below. 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.  At a price of $15 (the price at which the two demand curves intersect), the price elasticity of demand for the new drug is ______ the price elasticity of demand for the over-the-counter pain reliever.
A)greater than 
B)less than 
C)the same as 
D)the reciprocal of

Quizplus · Accepted Answer

The price elasticity of demand for the new drug will be less than the price elasticity of demand for the over-the-counter pain reliever. This is because the new drug is the only treatment for the life-threatening disease, making it a necessity for those affected. On the other hand, the over-the-counter pain reliever is just one of several options available, making it more elastic as consumers can choose to switch to other options if the price becomes too high. Therefore, the demand for the new drug will be less responsive to changes in price compared to the demand for the over-the-counter pain reliever.

Suppose That a New Drug Has Been Approved to Treat