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. 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 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.  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

According to the law of demand, as the price of a good increases, the quantity demanded decreases. Therefore, if the manufacturer of the new drug increases its price from $30 to $35, consumers would buy fewer doses. Additionally, since the demand for this drug is relatively inelastic (steep slope) compared to the demand for the non-prescription pain reliever (flatter slope), the increase in price would result in higher total expenditures for those who continue to buy the drug. Thus, the correct answer is D, fewer doses would be purchased, and total expenditures would increase.

Suppose That a New Drug Has Been Approved to Treat