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In each of the following examples, choose whether you would expect demand to be elastic or inelastic. In none of these examples will the demand be as elastic as the demand for gasoline at a particular gas station on a street with many gas stations. Drivers will flock to a gas station with a price a few pennies below its neighbors' prices, and will abandon a gas stations with a price a few pennies higher. Choose "Elastic demand" if you think that buyers will buy somewhat less if the price goes up, or somewhat more if the price goes down. Choose "Inelastic demand" if you think that the buyers will buy about the same amount if the price goes up or down. An unconscious bleeding man is brought to a hospital emergency room. A patient is given a presciption for a drug to control high blood pressure. The patient's insurance doesn't cover drugs, so the patient must pay out of pocket. A hospital in-patient has insurance that will pay all charges. What would the demand be like for nurse-administered propoxyphene (Darvon), a pain-reliever? A senior signs up with a managed care plan to get the Medicare drug benefit. Even though the senior is locked in for a year, the plan can, at any time, change which drugs it will pay for, based on the plan's judgement about a drug's effectiveness and price relative to other drugs that do about the same thing. For members of that plan, what might the demand for the Darvon be like? Darvon's cheapest alternative might be acetomenophen (Tylenol) in this case. A family has a high-deductible health insurance policy. The effect is that the family pays for primary care office visits out of pocket. Now, one of their children has an earache. What would their demand be like for an office visit to get this checked out? In general, if the decision-maker has an incentive to spend less on some product and if there is an adequate substitute for that product, then demand is more ...

Health Savings Accounts -- The Best Way to Make Demand More Elastic?

Elasticity