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    Question

    A pharmaceutical company introduces a new life-saving

    drug with no close substitutes. The company has a patent on the drug, giving it a monopoly in the market. The drug is expensive to produce, and the company sets a high price for it. In this situation, the demand for the new drug is likely to be:
    A Perfectly elastic. Correct Answer Incorrect Answer
    B Relatively elastic. Correct Answer Incorrect Answer
    C Unitary elastic. Correct Answer Incorrect Answer
    D Relatively inelastic. Correct Answer Incorrect Answer
    E Perfectly inelastic. Correct Answer Incorrect Answer

    Solution

    Since the drug is lifesaving and has no close substitutes, the demand is likely to be relatively inelastic. This means that even if the company increases the price, the quantity demanded will not decrease significantly because patients are willing to pay a high price for a life-saving treatment.

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