Question

The price for Daraprim, a drug invented 62 years ago to alleviate life-threatening parasitic infections, priced at $13.50 a pill, recently had a price increase to $750 a pill. Using a graph to show your work, what will be the impact on quantity demanded be for those who require this as a life-saving drug. (Hint: assume relatively inelastic demand).

Answer 1

As the price for Daraprim, a drug invented 62 years ago to alleviate life- threatening parasite infections, priced at $13.50 a pill, recently had a price increase to $750 a pill. Now as this is a life-saving drug, demand for this drug is relatively inelastic- means 1% increases in the price of the drug will lead to less than 1% decrease in the quantity demanded as people will buy this drug no matter how high the price is. Hence the demand curve for this drug will be relatively steeper and as price of the pill increases from $13.50 a pill to $750 a pill, the decline in the quantity demanded from Q1 to Q2 will be relatively smaller.