Question: Drugs that are not covered by patent can be freely manufactured by anyone. By contrast, the production and sale of patented drugs is tightly controlled. The advertising elasticity of the demand for antihypertensive drugs was around $0.26$ for all drugs, and $0.24$ for those covered by patents. For all antihypertensive drugs, the own price elasticity was about \(-2.0\) without advertising, and about \(-1.6\) in the long run with advertising.

1. Consider a \(5 \%\) increase in advertising expenditure. By how much would the demand for a patented drug rise? What about the demand for a drug not covered by patent?
2. Why is the demand for patented drugs less responsive to advertising than the demand for drugs not covered by patent?
3. Suppose that a drug manufacturer were to increase advertising. Explain why it should also raise the price of its drugs.

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