Pharmaceutical drugs have an inelastic demand, and computers have an elastic demand. Suppose that technological advance doubles the supply of both products (that is, the quantity supplied at each price is twice what it was).
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To analyze the impact of a technological advance on the demand for pharmaceutical drugs and computers, we need to consider their respective demand elasticity. Elasticity of demand refers to the responsiveness of consumers in changing their quantity demanded when there is a change in price.
1. Inelastic Demand for Pharmaceutical Drugs:
When the demand for pharmaceutical drugs is said to be inelastic, it means that consumers are less responsive to changes in price. This implies that even if the price of drugs increases or decreases, the quantity demanded doesn't fluctuate much.
2. Elastic Demand for Computers:
On the other hand, if the demand for computers is elastic, it means that consumers are more sensitive to price changes. In this case, even a small increase in the price of computers could lead to a significant decrease in the quantity demanded.
Now, let's analyze the impact of a technological advance on the supply and demand dynamics for each product:
- Technological advancement doubles the supply of pharmaceutical drugs. As the supply of drugs increases, assuming demand remains constant, the price of drugs would decrease due to the surplus. Since the demand for pharmaceutical drugs is inelastic, there won't be a significant change in the quantity demanded, even with the lower prices.
- Similarly, with the technological advance doubling the supply of computers, assuming demand remains constant, the price of computers would also decrease. However, due to the elastic demand for computers, consumers would be more likely to respond to the lower prices by increasing their quantity demanded.
In summary:
- For pharmaceutical drugs: With inelastic demand, the decrease in price due to increased supply would not have a significant impact on the quantity demanded.
- For computers: With elastic demand, the decrease in price due to increased supply would likely lead to a substantial increase in the quantity demanded.
By understanding the concept of demand elasticity and applying it to the scenario of a technological advance, we can determine the likely effects on the quantity demanded for pharmaceutical drugs and computers.