The price elasticity of demand for medical devices is about -0.25 to -.30.

Question

The price elasticity of demand for medical devices is about -0.25 to -.30. Suppose you were an economist for the medical device industry. How could you use this information to help forecast medical device sales in the United States?

Please briefly explain.

Answer 1

Firstly, observe that a price elasticity in this range (about -0.275) indicates relatively high price in-elasticity. Intuitively this makes sense, as medical devices are very important goods which people would generally buy even if they get a bit more expense. Broadly speaking, suppliers will tend to set price higher when their products are inelastic, as this leads to more surplus for them due to the relatively steep slope of the demand curve.

In this case, it would mean fewer medical devices would be sold at a higher price, which would give more surplus to suppliers and less to consumers. Indeed, this has often happened from big pharma companies. Therefore to broadly answer this question, you can forecast that sales will go down in the industry due to the higher price of the goods. This is with no other factors however, like government control or broader industry strategy.