In the market for medications, there is a difference in demand for medications that are under patent, medications that have a strong name brand, and medications that are generics. Discuss the differences in demand for these three different types of medications. Be sure to discuss these differences using the concepts of price elasticity of demand, cross price elasticity of demand and income elasticity of demand.
Hi, for feedbacks1. Keat (2014) stated that price elasticity measures the changes in consumption compared to the changes in price. The price change is in the producer’s control and is being adjusted to see if there is an opportunity to increase the amount of goods sold. Cross price elasticity measures how the price of one good would change because the price of a competing good has changed. These changes can be positive or negative. Income elasticity of demand occurs when a change in people’s income creates a change in demand. All three types of elasticity mentioned are indicated by a percentage. The measurement of income elasticity is usually used as a predicter for the sale of products in a business cycle (Keat,2014).Changes in the price of medications are a good example of the different types of economic elasticity. Gatwood et al. (2014) proposed that price elasticity depended highly on the classification of medication because of the changing levels of patient cost sharing. Research indicated that between 2000 and 2009 the copayment for medications varied in three tiers, generics, preferred brands, and non-preferred brands. By 2010 there were significant differences in copayments between the three categories, generic co-pays averaged $10, preferred brands averaged $29, and non-preferred brands averaged $49 (Gatwood et al., 2014).Medications that are under patent are subject to price elasticity of demand because there is little competition, meaning the control of the price is in the hands of the producer. Valencia (2021) stated that a lack of medication alternatives can force a patient to pay higher costs if there no other way for the patient to be treated, making these prices inelastic. While name brand medications are more elastic because a demand can be increased due to popularity or decrease due to a change in income. Typically, when income increases the desire for name brands increase as well. Generic medications create a negative cross elasticity because it is essentially the same ingredients as another brand, so the brands are competing and could be forced to lower prices (Valencia, 2021).ReferencesGatwood, J., Gibson, T. B., Chernew, M. E., Farr, A. F., Vogtmann, E., Fendrick, A. M. (2014) Price Elasticity and medication use:Cost sharing across multiple clinical conditions. Journal of Managed Care and Specialty Pharmacy. https://www.jmcp.org/doi/pdf/10.18553/jmcp.2014.20.11.1102Keat, P. G., Young, P.K. Y., & Erfle, S. E. (2014). Managerial economics: Economics tools for today’s decision makers. Pearson. (7th ed. Pp 68-75).Valencia, E. (2021, May 17). Price elasticity of demand in pharma, an introduction. Konplik. https://konplik.health/price-elasticity-of-demand-in-pharma-introduction/2. Elastic demand is when the change in quantity demand of a certain product is large due to the change in price. Inelastic demand is when the quantity demand of a certain product does not change even if the price changes. Cross price elasticity is formulated when looking at how a certain demand for a product shift over the price of another similar product. Income elasticity is the quantity demanded of a certain product, depending not only on that specific price, but on other similar product prices as well as the income of the consumer (Income Elasticity… n.d.). Medications under patent have a high demand no matter the price because, since they are patented, there is no other option. This means that there is high inelastic demand, and the income elasticity is zero because the buyers of the specific medication need to buy and use the medication no matter what (Angell & Relman, 2002). The cross-price elasticity is usually negative because there is not a substitute medication that can fill in for a patented medication. Medications that have a strong name brand are not as quite in high demand as the patented medication but are in demand no matter the price because they are brand names. These medications also have inelastic demand. The cross-price elasticity is positive because in this case, there are substitutes for name brand medications. The income elasticity is also positive because many consumers who buy more of these types of medications have a higher income (Gatwood, et. al., 2014). Medications that are generics have high elastic demand. These types of medications have many substitutes and are very easy to buy, which makes the price responsiveness high as well. These are different than brand name medications because of the look, taste, and even color (Rose Medical, n.d.). This means that the cross-price elasticity is positive because there are many substitutes. The income elasticity is negative because the medications are cheaper and so easy to buy, that once a consumers income rises, they switch to either brand name or patented medications, leaving the generic medications to not sell as quickly (Gatwood, et. al., 2014).ReferencesAngell, M., & Relman, A. S. (2002). Patents, profits & American medicine: conflicts of interest in the testing & marketing of new drugs. Journal of the American Academy of Arts & Sciences. Retrieved January 2022, from https://www.amacad.org/sites/default/files/daedalu…Gatwood, J., Gibson, T. B., Chernew, M. E., Farr, A. M., Vogtmann, E., & Fendrick, A. M. (2014, November). Price Elasticity and Medication Use: Cost Sharing Across Multiple Clinical Conditions. Journal of Managed Care & Specialty Pharmacy. Retrieved January 2022, from https://www.jmcp.org/doi/pdf/10.18553/jmcp.2014.20…Income Elasticity, Cross-Price Elasticity & Other Types of Elasticities. (n.d.). Lumen Macroeconomics.Retrieved January 2022, from https://courses.lumenlearning.com/wm-macroeconomic…Rose Medical. (n.d.). Difference Between Brand Name and Generic Drugs. Rose Urgent Care and Family Practice. Retrieved January 2022, from https://www.rosemedicalgroups.org/blog/difference-…