For several years, per capita expenditure on prescription drugs in Vor

Hi Karishma,

I get the logic. But then, how we interpret that drug companies already replaced the current drugs with higher priced drugs? Because answer choice A states that they concentrated on replacing the drugs. And I think here there is a need to see it from the drug companies POV. And maybe GMAC's common knowledge or logical thinking here is that any company always prioritize profit over anything. I am not sure how we can define it as "logic" or "common" here. I am not so sure how "common" is "common". For example, giving tips is common in USA, but not for other countries. However, I think that GMAT test takers need to learn what "common" is in the states. It is a blurry line between "common knowledge", "logical reasoning", and "convoluted story". I hope someone can really explain what we can consider belongs to any of these 3 categories.

Understanding the argument -
Problem - Expenditure rose
Goal - Curb the increase in Expenditure
Plan - The Ministry of Health prohibited drug manufacturers from raising their product prices

Paradox - The demand didn't increase, but expenditure still grew substantially.

How can revenue still grow if the demand does not increase and the price of those drugs doesn't increase? It means the drug manufacturers found a loophole. What loophole? Take a weird example - say, Azithromycin, which is an antibiotic, is a prescription drug. Say it costs $100 to insurance. The government said don't increase the price for Azithromycin. So what did the drug manufacturer do - they created "Pzithromycin" with the same salt and launched it for $300. Govt. did not stop Pzithromycin; they stopped Azithromycin from pricing increase.

Option Elimination -

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

(B) The population of Voronia rose steadily throughout the period. - Per capita mentioned in the argument takes care of this. Distortion.

(C) Improvements in manufacturing processes enabled drug manufacturers to maintain high profit levels on drugs despite the price freeze. - We aren't concerned about manufacturing high-profit. We need to know why expenditures grew substantially even after Govt. took the required steps. This option is out of scope.

(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. It worsens the paradox. The expenditures should decrease in that case and not increase. Opposite of what we are looking for.

(E) After price increases were prohibited, some foreign manufacturers of expensive drugs ceased marketing them in Voronia. It worsens the paradox. If an expensive one quit, the price should go down. Opposite of what we are looking for.

(A) Correct Answer

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

Key insight: If drug companies introduced new (and possibly more expensive) medications, patients might switch to these newer drugs instead of the older, price-controlled ones.
Since new drugs are not subject to the price freeze (because they didn't exist before), they can be priced higher than the older ones.
This explains why per capita expenditure kept increasing, even though drug prices weren’t raised directly. ✅