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Elasticity of Demand in Pharmaceuticals Essay

Elasticity of demand is simply how the changes in price of a good affects consumers responsiveness in the quantity demand for it. For a drug like Avastin, which is useful in the treatment of terminal disease such as cancers of the colon, retum, lung or breast its price would normally be high given the high demands for such drugs in managing and treating cancer (Drug Information Online 2009). The cost of Avastin is as much as $100,000 a year, and it is one of the most prominent drugs for treating cancer, as it prolongs life with some months (Kolata & Pollack 2008).

When patients are the one paying for the drug, given the high cost of the drug those who can afford it would be the affluent, and the number of demand would be low. Small percentage change in price in the drug will have little effect on its demand; as the same number of demand would still be made, thus we say it would have a perfect inelastic demand. When Government is subsiding or totally paying for the drug the demand for it would greatly increase, as thus who can’t afford it would now gain access to it.

However, when private

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insurance is footing the bill for the drug, the number of users who be restricted as when government is paying for it. The number of policy holder in a private insurance firm would be a condition to restrict who would benefit from the payment. For a price reduction in the drug Government is the one paying subsidy to make it affordable. Thus, government as an agent for catering for the populace welfares would be performing this function by giving subsidies on the drug as a way of bringing down its price.

The ordinary poor citizens can not afford a drug that cost that much thus, government’s subsidy on the drug is a succour that would increase the demand. With government subsidy on Avastin the demand curve for the drug would shift to the right showing an increase in demand through government subsidy. Thus, the manufacturer of the drug tends to gain since the product is relatively inelastic. “Generally, relatively more of the benefit falls on the side of the market with the product has least price sensitive curves” (Rdc1 2009) (2)

Avastin drug is has a relatively inelastic demand; since the user normally have little substitutes for it, that is, they can choose to buy it to remain alive in treating their cancerous health or choose to do without it and stay to die or go for other drugs that has same potency. Thus, with a partial inelastic demand we can say the reduction or increase in the price of Avastin drug would result in little responsiveness from users. That is, given the high price of the drug, when there is change in its price, if that change is little it would have no effect on the demand level of the drug.

Again, in the situation where government subsidy is removed from the drug, it would then be like other ostentatious goods that only the rich can afford. (3) This type of drugs should be distributed based on level of health needs, affordability. In this case, the poor who cannot afford the high cost of the drug should be given access to them through government full subsidies, while the rich who can afford them should get partial subsidies on the drug.

Thus, in this case government would be the right choice for determining how such drugs is distributed. When the distribution is left to the free market, they only the rich could afford it, and the poor would have no financial ability to get access of the drug. Government obligation is to set regulation that there is no partiality or bias in the distribution of the drugs. Thus, government would need to map out quotas in the drug distribution according to geographical coverage, health need etc to its different regions and states.

The Insurance firms should be made to pay for all new treatment that has taken policy under their firms. It will constitute a breach of contract when insurance firm renege to take up some treatments, while it accepts others. The number of people with cancer that have taken insurance policy that would determine how the larger population is affected. When insurance firms pay for every new treatment, it means the number of people taking insurance policy would rise.Also, this would normality raise the insurance premium.


Kolata, G & Pollack A (2008) “Costly Cancer Drug Offers Hope, But Also a Dilemma” http://www. nytimes. com/2008/07/06/health/06avastin. html (25-03-09) Rdc1 (2009) “The Microeconomic Effect of Government Subsidies, Transfers, and Similar Expenditures” EC 330 Handout 4 http://www. rdc1. net/class/PublicFinance(ug)/ec330ho4. pdf. (25-03-09) Drug Information Online (2009) “Avastin” http://www. drugs. com/avastin. html. (25-03-09)

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