Critical Reasoning

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.

[spoiler]OA: A vs C.....which one is better and why???Plz justify your reasoning[/spoiler]

I would go for A. A because it provides a possible explanation why capital expenditures would increase, whereas C does not explain straight forward the reason of increase. C seems to me shifting from the focus of the question.

gross exp = total exp/ total population = exp per person

gross exp is incresing even though total exp is remained constant.
How is A helping in resolving this...
I am very bad at macro economics... Kindly help

HSPA wrote:gross exp = total exp/ total population = exp per person

gross exp is incresing even though total exp is remained constant.
How is A helping in resolving this...
I am very bad at macro economics... Kindly help

Well, capital expenditure is the amount that customers spend on drugs, isn't it? The price freezes, but the capital expenditure keeps increasing due to prescription of the new substitutes. I thought that customers would still keep buying medications, but this time the new ones. Even though, I solved it by removing the other options first.

@HSPA:

How is A helping in resolving this...

P1: Price freeze for the products P2: No increase in demand C: Still increased proportion in per capita expenditure for the drugs under discussion

Normally,this should not have been the case. Something these companies must have done to raise their profits . Look at A now

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

These clever folks found a way to deal with government by replacing the existing medicine that were under price freeze by new medicines that would not fall under the price freeze. hence allowing companies to raise the price , resulting in more expenditure per capita.