Final answer:
If new alternatives to EpiPens were available, the price elasticity of demand would likely increase. Pricing strategy for a hypothetical pharmaceutical drug depends on its price elasticity of demand, and income elasticity indicates whether bread is an inferior or normal good.
Step-by-step explanation:
Concerning the price elasticity of demand for EpiPens, if new competitors and alternative devices entered the U.S. market, one could reasonably expect that elasticity would increase. The elasticity of demand measures consumers' sensitivity to price changes. When there are more substitutes available, consumers can more easily switch to alternative products if the price of EpiPens rises, which is why the elasticity of demand for EpiPens would likely increase.
If we look at a hypothetical scenario in a pharmaceutical company for a drug that causes bald men to grow hair, advice on pricing strategies would depend on the elasticity of demand. If the elasticity is 1.4, which means demand is elastic, the company should lower the price to increase total revenue. Conversely, if the elasticity is 0.6, indicating inelastic demand, raising the price could be beneficial to revenue. If the elasticity equals 1, the company is at an equilibrium point where total revenue is maximized, and changing the price would not significantly affect the revenue.
For companies like UPS or FedEx, the gasoline price elasticity of supply is crucial for managing operational costs. If supply elasticity is low and prices rise, these companies will incur higher costs, which could impact pricing and profit margins.
Focusing on the income elasticity of bread, we use the provided data to calculate it:
- Percentage change in quantity consumed = ((22 - 30) / 30) * 100 = -26.67%
- Percentage change in income = (($38,000 - $25,000) / $25,000) * 100 = 52%
- Income elasticity of demand = percentage change in quantity/percentage change in income
- Income elasticity of demand = -26.67% / 52% ≈ -0.51
Since the income elasticity is negative, this implies that bread is an inferior good. As incomes rise, the quantity of bread consumed decreases.