Question

8. Clinical trials showed that the arthritis pain relief drug Vioxx had larger side effects than previously known. What do you expect this news did to the price and quantity of Ibuprofen sold? Explain in words and graphically.

Answer 1

Following graph shows the market for Ibuprofen -

As above figure shows, initially, the market for Ibuprofen was in equilibrium at point E, where demand curve for Ibuprofen, D, was intersecting the supply curve of Ibuprofen, S.

The equilibrium price was P and equilibrium quantity was Q.

Now, clinical trials has showed that the arthritis pain relief drug Vioxx had larger side effects than previously known. This new information will made the people taking Vioxx to reduce the quantity they consume of Vioxx and they will look for alternative to fulfill their medication needs.

Since, Ibuprofen is a substitute of Vioxx as it is also helpful in pain relief, people taking Vioxx will substitute it with Ibuprofen and this will lead to increase in demand for Ibuprofen.

This increase in demand will shift the demand curve for Ibuprofen to the right from D to D1.

New equilibrium will be attained at point E1, where new demand curve, D1, is intersecting the supply curve, S.

New equilibrium price is P1 and new equilibrium quantity is Q1.

Thus, this news has resulted in an increase in price and quantity sold of Ibuprofen.