The following is proposals on reducing expenditure on drug.

A: reduce prices by restrictly supply
B: raise prices (by legalizing distribution)
C: Do nothing

What does each of them think about the elasticity of demand for the drug? (elastic, inelastic, unitary elastic)

Please help and give me some explanations, thanks.

To determine what each proposal thinks about the elasticity of demand for drugs, we need to understand the concept of elasticity of demand and how it relates to each proposal.

Elasticity of demand measures the responsiveness of the quantity demanded of a product to a change in its price. It helps determine how sensitive consumers are to price changes and can be classified into three categories: elastic, inelastic, and unitary elastic.

1. Proposal A: Reduce prices by restricting supply:
This proposal suggests that by limiting the supply of drugs, prices would be reduced. The effect on the elasticity of demand depends on whether the demand for drugs is elastic, inelastic, or unitary elastic.

- If the demand for drugs is relatively elastic (responsive to price changes), a reduction in prices could lead to a proportionally larger increase in demand. In this case, the proposal assumes that by reducing prices, the demand for drugs would increase significantly.

- If the demand for drugs is relatively inelastic (less responsive to price changes), a reduction in prices may have minimal impact on the quantity demanded. The assumption with this proposal would be that even if prices decrease, the demand for drugs would not change significantly.

- If the demand for drugs is relatively unitary elastic (exhibits a proportional relationship between price changes and quantity demanded), a reduction in prices would result in a proportionate change in the quantity demanded. The proposal assumes that a reduction in prices would result in a proportional change in demand.

2. Proposal B: Raise prices (by legalizing distribution):
This proposal suggests that by legalizing the distribution of drugs, prices would increase. Again, the impact on the elasticity of demand depends on the nature of demand for drugs:

- If the demand for drugs is relatively elastic, an increase in prices would likely lead to a more substantial decrease in demand. The proposal assumes that by raising prices, the demand for drugs would decline sharply.

- If the demand for drugs is relatively inelastic, an increase in prices may have a limited impact on the quantity demanded. In this case, the expectation would be that even if prices increase, the demand for drugs would not change significantly.

- If the demand for drugs is relatively unitary elastic, an increase in prices would result in a proportional change in the quantity demanded. The proposal assumes that raising prices would lead to a proportional change in the demand for drugs.

3. Proposal C: Do nothing:
This proposal suggests taking no action to address drug expenditure. Without specific actions or changes in price, it is difficult to determine the proposal's assumptions about the elasticity of demand for drugs. It is possible that the proposal assumes the demand for drugs is inelastic, as no changes are proposed to influence demand.

In summary, each proposal's stance on the elasticity of demand for drugs depends on the assumption made about the responsiveness of demand to price changes: elastic, inelastic, or unitary elastic. The specific nature of the demand for drugs would determine how each proposal expects the quantity demanded to change in response to changes in price.