This IMPENDING CRISIS (or already is?) gripping our society.
- A new strain of flu: combination of bird, pig and human flu viruses.
- Epicenter of the influenza outbreak: Mexico City
- Spread through contact with infected PIGS
Tamiflu is a price inelastic. It has a very small number of substitutes, and in this influenza situation, its only closest substitute is Relenza, a similar drug which prevents infection with Swine flu viruses. Therefore, any change in price brings about a less than proportionate change in quantity demanded.
The Demand curve shifts to the right with a magnitude larger than that to the shifting of the Supply curve to the right. As the influenza situation worsens, with the publishing of more reports on the severity of the condition, rising death tolls and increasing worry among the public, governments will take immediate action to stock up its supply of Tamiflu. There is imminent fear than the 2009 swine flu outbreak will plunge the world into a serious pandemic as feared like the SARS incident back in 2003. In this short period of time, the demand for Tamiflu will rise significantly due to the change in consumers’ expectations.
To meet the high demand of Tamiflu, pharmaceutical industries will start to produce more of the good to cater to a higher number of needs. But due to patented laws on the drug, there are not many companies that are legalised to produce it. The supply of Tamiflu is price inelastic. When the demand for Tamiflu increases, price increases significantly while the output increases less than proportionately in response. (P2-P1 > Q2 –Q1)(sorry, the diagram is not clear enough!)
Leny <3 ECONS!
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