Question

Why was the manufacturer able to increase the price so much? What type of good is an Epipen? Do you think that the price increase is fair for consumers? Was raising the price in the best interest of the manufacturer? How did they think raising the price would affect their revenue? Why?

Answer 1

Epipen is a kind of medication ( auto-injector ) which is used during emergencies to treat very allergic reactions . It is an effective medicine and acts very quickly to improve breathing, stimulate the heart, raise a dropping blood pressure, reverse hives, and reduce swelling . It is kind of a life saving device .

So the demand for the product is highly inelastic . When a person is severely sick he will try to buy medicine at any cost . So the manufacturer is able to increase the price so much since Epipen has no other cheap substitutes .

Epipen is an inleastic good . Change of price does not affect demand to a large extent .The maker of the EpiPens has been going on raising the price of the drug by about 25% per year even though the drug is officially a generic and, thus, might be expected to be affordable .

Price increase is not fair for consumers since it is a lifesaving drug not a luxury commodity . Producers does not have unlimited pricing power . At some point consumers will protest and stop demanding high priced medicine without thinking about their lives . This is not a situation that is ethically fair .

US lacks Epipen competitors . So there is a monopoly situation in the market . Monopoly alongwith inelastic demand is the best chance for a manufacturer to make super normal profits . But if the manufacturer keeps on raising the price , then at one time consumers are going to stop buying the product or new companies will be allured in the market .

Raising the price to a certain extent obviously increases revenue since it is an inelastic product .