For several years, per capita expenditure on prescription drugs in Voronia rose by fifteen percent or more annually. In order to curb these dramatic increases, the ministry of health prohibited drug manufacturers from raising any of their products' prices. Even though use of prescription drugs did not expand after this price freeze, per capita expenditure for prescription drugs continued to increase by a substantial percentage each year.

Which of the following, if true, most helps to explain why the ministry's action did not achieve its goal?

(A) After price increases were prohibited, drug manufacturers concentrated on producing new medications to replace existing products.

(B) The population of Voronia rose steadily throughout the period.

(C) Improvements in manufacturing processes enabled drug manufacturers to maintain high profit levels on drugs despite the price freeze.

(D) In addition to imposing a price freeze, the government encouraged doctors to prescribe generic versions of common drugs instead of the more expensive brand-name versions.

(E) After price increases were prohibited, some foreign manufacturers of expensive drugs ceased marketing them in Voronia.

Pls explain how to eliminate wrong answer choices and arrive at the correct answer in above GMATprep CR question? Thanks

Hi Tutors, Pls explain this one? Thanks

Hi everyone,

My 2 cents' worth - basically POE:

B - "The population of Voronia rose steadily throughout the period."
--> Doesn't affect per capita expenditure

C - "Improvements in manufacturing processes enabled drug manufacturers to maintain high profit levels on drugs despite the price freeze."
--> price freeze doesn't lead to increase in per capita expenditure.

D - "In addition to imposing a price freeze, the government encouraged doctors to prescribe generic versions of common drugs instead of the more expensive brand-name versions."
--> policy will lead to reduced per capita expenditure

E - "After price increases were prohibited, some foreign manufacturers of expensive drugs ceased marketing them in Voronia."
--> policy will not increase per capita expenditure since the manufacturers will not be spending more money to promote the medications.

It leaves us with A:
"After price increases were prohibited, drug manufacturers concentrated on producing new medications to replace existing products.
--> by developing new patented drugs (which are usually more expensive -- assumption), and if the population finds the new drugs useful (another assumption), yes the per capita expenditure of medication will increase.


Hope my reasoning is correct.
KH

"per-capita expenditure" is the total price paid for drugs (price per pill * # of pills) divided by the number of people.

If the per capita expenditure is increasing, either the numerator has to be increasing or the denominator has to be decreasing or both.

So, either the price is increasing, the number of pills is increasing, or the number of people is decreasing (or some combination of the above).

premise: product prices can't be raised (note: by definition, this only addresses existing products; new products not yet introduced do not yet have assigned prices)
--> So I can't raise the price of existing products, but I could introduce more expensive products.

premise: the use of prescription drugs did not increase after the price freeze
--> So the number of pills isn't changing

A) new medications = new price introductions. If these prices are higher than the prices for the old products, then that's how I can increase the numerator of my "per capita expenditure" calculation

B) if this changes anything, it would decrease the per capita expenditure (if the new people didn't take any drugs) - though the more reasonable assumption is that the new people are taking drugs at the same rate as the old people, meaning there's no change in per capita expenditure. Either way, per capita expenditure is not increasing.

C) we're concerned with why the per capita expenditure is still increasing and profit levels don't affect that calculation

D) the government can encourage anything it wants - that doesn't mean it happened. And, anyway, if the gov't were successful in this plan, that should have lowered per capita expenditure, not increased it.

E) if this changes anything, it would decrease the per capita expenditure (people aren't buying as many of the expensive drugs anymore)