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elasticity of demand for drugs

Subject: Price theory
Details: Consider the elasticity of demand for drugs. How does it affect the terms of this trade-off (talking about short run and long run gains from patents)? Can you explain why, if the elasticity of demand is low, the short-run allocative distortion associated with patent protection?the ?welfare burden? may be relatively small?and the incentive to innovate relatively large (compared with a greater elasticity), but the distributional effects within the population will be correspondingly larger.

Solution Summary

The elasticity of demand for drugs is discussed.