Question

Prescription drug own price elasticity has been estimated to be about -0.015. First, interpret this elasticity (and is it elastic or inelastic)? What are the implications of this elasticity in relation to price? Why is this elasticity so low (explain at least 2 potential reasons)

Answer 1

Elasticity value less than 1 is inelastic and greater than 1 is elastic. So an elastic value of -0.015 means the response of change in quantity demanded for a change in price is very less.
The reasons:
1. Drugs being a necessity for curing a disease are consumed as per the prescription of doctors hence the quantity demanded is limited.
2. Patients or consumers would not consume more of drugs for a reduction in price hence the quantity demanded would not change and hence it is inelastic.