Question

8-

Analyze the case of rise in price of Daraprim using the concept of Elasticity of Demand. Make sure to include the three main factors that affect elasticity of demand and comment on how each factor contributed to the rise in price of Daraprim overnight.

Answer 1

Daraprim is a medicine used for treating infectious diseases.( parasite infection).The reason why the company was able to rise the price of this medicine overnight was because it's demand is inelastic(demad curve is vertical).

lt is used to treat a rare infection which can be deadly for those with weaker immune systems.So the company was pretty sure that the demand won't decline even after the price rise..

The factors which influence elasticity of demand also contributed to the price rise.

*Nature of the product

Daraprim is a life Saving medication.There is no way people can reduce the consumption even of price rises.

* Number of close substitutes

Larger the number of close substitutes,larger the elasticity of demand.ln the case of daraprim,there are no close substitutes available in the market.There for the demand is inelastic.

*Number and variety of use

The more the number and variety of uses of product,the more it's elasticity of demand.ln the case of dara prim,we know that it's only used for treating Infection which can be life-threatening.There for it has inelastic demad

However the decision of the producers of daraprim has been criticised worldwide as its a violation of ethics.