February 19, 2020
After an exciting start to his race for leadership of the Democrats – winning in New Hampshire and a close runner-up in Iowa–those of us at Econ Eye wanted to write about our favorite Bernie Sanders story.
What is the Bernie Sanders Insulin Caravan?
Back in July 2019, Bernie Sanders and his so-called “insulin caravan” traveled over the U.S.-Canada border with 15 Americans, all of whom live with Type 1 diabetes. Sanders organized this voyage to demonstrate the difference in the American and Canadian prices of insulin–the drug responsible for keeping millions of people in North America alive every day.
What happened when they got to Canada?
For years before this story began, these consumers bought insulin for $340 a vial. When they crossed the Detroit River into Canada that summer day, they saw Canadians buying insulin for $30 in Canadian dollars – which is only $22.62 according to today’s exchange rate!
Were Canadians with Type 1 diabetes buying more insulin than Americans were buying? No! They were buying the same 12 vials a year as Americans.
Review: What’s elasticity, again?
Elasticity tells us the responsiveness of a variable to a change in a related variable. The price elasticity of demand is a units-free measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences on buying plans remain the same.
Its formula is:
The measure is units-free because the numerator and the denominator are both percentage changes. When we divide one percentage by another, the percentages cancel, and we are left with a units-free value.
What is the price elasticity of demand for insulin?
The U.S.-Canada price difference enables us to use a natural experiment to answer this question and find the price elasticity of demand for insulin. A natural experiment is an event that arises in the course of economic life when two situations differ by the one variable that we want to measure.
Crossing the border, the price of insulin falls from $340 a vial to $22.62 a vial and the average price is $181.31 a vial. The quantity demanded by a diabetic is 12 vials per year in both situations (buying in the United States and buying in Canada).
The price elasticity of demand calculation is as follows:
Zero is a special number to get in an elasticity calculation. If the quantity demanded of a good remains constant when the price of the good changes, then the price elasticity of demand is zero–just as in the calculation above. The good is then said to have a perfectly inelastic demand.
Let’s look at the graph.
Now take this short quiz to check that you understand what you have just read.
Multiple Choice Quiz – Bernie Sanders Insulin Caravan