ExpertEasy2 marksMultiple Choice
ACCA · Question 03 · Syllabus A: The business organisation and its external environment
BioCure Ltd manufactures a highly specialized, patented drug for a rare genetic disorder. There are currently no alternative treatments available on the market. How would the price elasticity of demand (PED) for this drug most likely be described?
BioCure Ltd manufactures a highly specialized, patented drug for a rare genetic disorder. There are currently no alternative treatments available on the market. How would the price elasticity of demand (PED) for this drug most likely be described?
Answer options:
A.
Perfectly elastic
B.
Highly elastic
C.
Highly inelastic
D.
Unitary elastic
How to approach this question
Consider the availability of substitutes and the necessity of the product. How will consumers react to a price increase?
Full Answer
C.Highly inelastic✓ Correct
Price Elasticity of Demand measures how sensitive quantity demanded is to a change in price. Necessities with no substitutes (like patented life-saving drugs) have highly inelastic demand.
Common mistakes
Getting elastic and inelastic mixed up. Remember: Inelastic = Insensitive to price.
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