Question

Why are patented drugs sold at very high prices?

• A. Governments charge very high taxes on patented drugs
• B. The costs of production of these drugs are very high and firms have to sell at very high prices to generate profits
• C. The firms have no competition and the drugs have no substitute. Hence, they have a highly inelastic demand.
• D. None of these

Answer 1

The correct option is C

The firms have no competition and the drugs have no substitute. Hence, they have a highly inelastic demand.

Patented drugs are sold at higher prices because the firms selling them have no competition and the drugs don't have any substitutes. Hence, they can charge very high prices and people have no option but to buy from them.