Scholar Pharmaceuticals holds a patent on an important heart medication called Heavac. However, the patent will expire in the coming year. After its expiration, other firms can legally sell the same medication as a generic drug substitute.
Question:
What will happen to the demand elasticity for Heavac once generic alternatives enter the market? How will this affect the Lerner Index, which measures market power?
A. Demand becomes more elastic; the Lerner Index declines.
B. Demand becomes more elastic; the Lerner Index increases.
C. Demand becomes less elastic; the Lerner Index increases.
D. Demand becomes less elastic; the Lerner Index declines.