Merck produces a widely-used statin called ZOCOR that treats high cholesterol. In
2015 they set the price a $30 per 30-day supply. They sold 500,000 units (30-day supplies)
that year. In 2016, they experimented with lowering the price to $15 per 30-day supply.
They sold 700,000 units that year.
a. Plot the 2 observed (Price, Quantity) pairs and connect them to draw a demand
curve, putting price on the vertical axis.
b. What is the equation of the demand curve?
c. What is the slope of the demand curve?
d. What is the elasticity of demand at the 2015 price?
e. What is the elasticity of demand at the 2016 price?
f. Assume that the curve from part b is an accurate representation of the aggregate
demand. Does this imply that individual decisions to purchase ZOCOR are not
responsive to other factors, such as fluctuations in household income or changes in
health state? Explain. (Note that income and health state are not contained in the
equation from part b.)