A study by the University of York has estimated that the price elasticity of demand for prescription medicine (medicine recommended by a doctor that is paid for by the patient) in the UK is around -0.35.


Explain what a price elasticity figure of -0.35 means about the demand for prescription medicine.

Why might elasticity be at this level?

Have students work in pairs to consider the three questions on the main screen.


The answers are as follows:


1) Price rises by about 75% and demand falls by about 25%, so about -0.333.

2) Think about (i) 1970 to 1980, (ii) 1982 to about 1997, (iii) 1997 to 2001 and (iv) the last part of the chart.

3) Price won’t have been the only factor contributing to the change in demand over the period, therefore it’s not all PED really because it’s not ceteris paribus.

The USA

Explain what a price elasticity figure of -0.35 means about the demand for prescription medicine.
Source: 'WHO report'
Question 1

Calculate the apparent PED for cigarettes between 1982 and 1997 (from the lowest to the highest point).

Question 2

Consider how significant the price seems to be.

Question 3

Think about how confident we can be about the idea that PED is -0.33.

Show the students the data and ask them to think about (in pairs/small groups) why PED varies by age and income.

The table below gives estimates of PED by income group and age for tobacco consumption in Ukraine.

Price elasticity Low income Middle income High income
14–17 years -0.65 -0.7 -0.52
18–28 years -0.37 -0.42 -0.24
29+ years -0.28 -0.33 -0.15