Health economists Dhaval Dave and Henry Saffer researched the U.S. market for four prescription medicines (analgesic/musculoskeletal, antilipidemics, gastrointestinal acid reducers, and insomnia remedies). The elasticity of demand with respect to consumer advertising ranged between 0.13 and 0.19, while the elasticity of demand with respect to physician advertising was 0.51. The own-price elasticity was −0.67 for drugs advertised to consumers and −0.73 for drugs not advertised to consumers.
a. How would a 5% increase in expenditure on advertising to consumers affect the demand for the four prescription medicines?
b. What about a 5% increase in expenditure on advertising to physicians?
c. Do you expect the same difference between advertising to consumers vis-à-vis physicians in the demand for over-the-counter (non-prescription) medicines?
d. Suppose that a drug manufacturer were to increase advertising. Explain why it should also raise the price of its drugs.

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Answers a Advertising elasticity of demand E 96change in quantity demanded Q ... View the full answer