Elasticity price

Dahl, C. A., and Duggan, T. (1996). U. S. Energy Product Supply Elasticities A Survey and Application to the U.S. Oil Market, Resources and Energy Economics 18 243-263. Dahl, C. A., and Duggan, T. (1998). Survey of Price Elasticities from Economic Exploration Models of U.S. Oil and Gas Supply, Journal of Energy Finance and Developni enf3(2) 129-169. 

Generally it can be observed that price elasticity is low, a trend that is aggravated by the fact that in most health systems the consumer does not pay the totality of the price. Some authors state that the elasticity of substitution between medicines in different therapeutic groups can be almost nil. The existence of insurance is an incentive for greater consumption and facilitates the application of higher prices (moral hazard). 

Some empirical observations are significant in this respect. For example, the demand for brand products is fairly sensitive to the price of generics, and even in some cases to the price of brand name therapeutic substitutes. In an estimate of the parameters of the demand function of brand products and generics in the cephalosporin submarket in the USA, a high price elasticity was observed between brand products and generics, and also in some cases, although to a lesser extent, between therapeutic substitutes.4... 

A similar model is provided by what is called Ramsey pricing, after the economist Frank Ramsey.1213 This author showed that if the above conditions for market segmentation are fulfilled, social welfare is maximized in a particular market when the profit margin that is added to the marginal cost of production in order to determine the ex-factory price is inversely proportional to the price elasticity of demand. In other words, the price is always fixed above the marginal cost in order to recover the sunk costs, but this margin is inversely proportional to the sensitivity of demand in that market. Formally, this can be expressed as follows ... 

The influence of RP on selling prices depends on the monopsony power of the buyer, the price elasticity of the product and the cross-price elasticity for substitute products, and also the coverage of products under RP. The situation most likely to result in equivalence between RP and price-cap regulation is when there is a majority buyer, the number of products under RP is very large and demand is very elastic. In general, the RP system attains its objectives best when the pharmaceutical bill has a close relationship with price pressure and when price differentials in the market for equivalent products are high, which has clear links with the presence of generics. 

In short, the imperfections of the pharmaceutical market cause (a) less price sensitivity on the demand side, (b) a certain amount of market power on the supply side, and (c) demand curves that do not reflect the true social benefit. Demand for pharmaceuticals is greater and less price-elastic than it should be. The reason for this is that consumers have little price sensitivity, especially under insurance coverage. 

Voluntary insurance would be the market solution to uncertainty for risk-averse individuals. In this context, the user chooses the optimum co-insurance rate. Theory offers some analytical results on optimal health insurance contract designs.1 The consumer decides the extent of the coverage and the optimum co-insurance rate, and ultimately the price to be paid for the premium. In competitive markets, with actuarially fair premiums, the optimum co-insurance rate varies between individuals and depends on the risk of falling sick and the price elasticity of demand. 

The phenomenon of moral hazard, and the consequent welfare loss, occurs when the demand of the insured party shows price elasticity, and the greater the elasticity the greater the moral hazard. Recall that the price elasticity of demand is defined as follows ... 

If we say, for example, that it stands at -0.2, we mean that if the price rises by 1 per cent, the quantity demanded will decrease by 0.2 per cent. In fact, the price elasticity of demand measures the potential for moral hazard.9 In Figure 7.1, the slope of the demand function for 100 per cent copayment is what ultimately determines the shaded area, which as we already know, corresponds to the welfare loss of total coverage pharmaceutical insurance. 

In addition to this, however, as the reader can see from Figures 7.1 and 7.2, the price elasticity of demand increases as the co-payment rate increases. 

Furthermore, the price elasticities of demand for pharmaceuticals are likely to differ depending on individuals income. If low-income households have a more price-elastic demand, an increase in co-payment will cause them to make a proportionally larger reduction in their pharmaceutical consumption than high-income households. The same thing could happen if we make the comparison in terms of levels of health. We are faced with equity problems, to which we will return below. 

Those studies that focus on the UK, where co-payment takes the form of a fixed sum, also lead to the conclusion that the number of prescribed drags is sensitive to increases in co-payment. Elasticities for that country have been quantified in the interval -0.22 to -0.50, according to the review by Hitiris.24 The price elasticity in the UK between 1971 and 1982 was, according to a study by Lavers,25 in the region of -0.15 to -0.20. 

In Spain the price elasticity of demand for pharmaceuticals is low, according to available estimates. Puig-Junoy26 has estimated that the figure stands... 

One of the classical topics of pharmaceutical economics, the price elasticity of demand when there is co-payment or shared financing between the insurer and the user, is addressed by Cruz-Roche20 with some calculations on this elasticity. The same topic is developed by Puig-Junoy,21 applied to the Spanish case. This study includes a review of the international literature with empirical content, a detailed description of co-payment in Spain, its regulation since 1978, the main data and estimates of the effect of the switching of prescriptions from the employed to pensioners, and the price elasticity of demand (which is found to be small). 

The empirical results provided by Borrell17 indicate that the price elasticity of aggregate demand for each therapeutic chapter appears to be much higher than time-series and cross-national studies have shown. Thus, price restriction may be a powerful explanatory factor for the large amount of pharmaceuticals consumed per person in Spain. 

Table 6.7 Own and cross price elasticities of demand for organic and conventionally produced dairy products in Denmark...

Table 6.8 provides a more comprehensive set of estimates of own-price elasticities of demand for organic products, compared to the conventional equivalent, this time for the UK. In all cases the response of consumption of organic products to change in price is about double that for conventional produce. 

The relationship between spot sales price and spot sales quantity is expressed by the period-specific parameter spot demand price elasticity esplt also defined e Is2, teT. The spot demand elasticity spl typically... 

Spot demand price elasticity is not a forecasted parameter but needs to be derived analytically. As specified in the value chain characteristics in subchapter 3.2 the company does not have a monopoly in the market and sales decision of the company do not influence the market price. Therefore, elasticity is not determined from a macro-economic perspective considering market prices but from a micro-economic perspective analyzing the specific spot demand forecasts the company receives. Table 24 provides the detailed steps of the algorithm for determining elasticity and the price-... 

Comparing value scenarios like exchange rate, sales price, elasticity and procurement price experiments with the control scenarios, value scenario influence on profits and volumes is significantly higher than the influence of volume control scenario experiments in the specific case. 

Elasticity analysis algorithm as pragmatic approach to determine average price elasticity of aggregated demand forecasts that analyzes underlying customer price-quantity demand. 

When E < 1, the consequence of a price increase is a small volume decrease for instance, when P goes up 1.0% and the quantity sold Q goes down by 0.5%. We say that the product is price inelastic, which is the case for an indispensable product without a suitable substitute that one has to buy regardless of cost, or is a product of negligible cost, such as salt. When > 1, the consequence of a price increase is a large volume decrease for instance, when P goes up by 1.0% and Q goes down by 2.0%. We say that the product is price elastic, which is the case for discretionary luxury... 

Thus, when E < 1, the revenue of a price-inelastic product increases with the price, so it may be advantageous to increase the price. But when E > 1, the revenue of a price-elastic product decreases with the price, and it may be advantageous to decrease the price. When E = 1, we have a price-neutral product, where the sales revenue is independent of the price. 

Some people think that the digital camera is a luxury good with a high price elasticity, such as = 2 so that Q = cP. When the price goes up, the quantity sold would go down so, when you take a derivative you obtain the formula... 

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