The Looming Blood Surplus: A Case Study in Supply and Demand
Economics for your Classroom from
A Market for Blood?
Many Americans, used to donating blood in exchange for a warm glow of public service rather than cold cash, would be surprised to learn that the blood they donate flows straight into the market economy In fact, blood is a $3 billion business. Donated blood is processed, stored, and sold to hospitals by commercial brokers and by not-for-profit organizations like the Red Cross. The market for blood is entering a period of turmoil September 15, 2014 Ed Dolan’s Econ Blog
Transfusions save lives, but .
. . Blood transfusions save lives on the battlefield and in emergency rooms, but they also carry a risk of infection New medical standards recommend fewer transfusions for procedures like open heart surgery In common operations like joint transplants, doctors have cut use of transfusions by as much as 75 percent Medics prepare to administer a transfusion to a wounded soldier September 15, 2014 Ed Dolan’s Econ Blog
Question: How Do New Medical
Techniques Affect Price? How do new medical techniques affect the market for blood? Does the demand curve shift? If so, show the new demand curve Does the supply curve shift? If so, show the new supply curve Show the new equilibrium price September 15, 2014 Ed Dolan’s Econ Blog
Answer: How New Medical Techniques
Affect Price New medical techniques mean that the amount of blood purchased at any given price will decrease That change is shown by a shift of the demand curve to the left, from D0 to D1 The technologies do not directly affect the costs of supplying blood, so the supply curve does not shift In response to the decrease in demand, producers move down and to the left along the supply curve The market reaches a new equilibrium at the price P1 Sept. 15, 2014 Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
Restrictions on donations FDA
regulations place certain restrictions on blood donations For example, since the 1980s, donations from gay men have been completely banned In view of new testing and screening techniques, the American Red Cross and the American Association of Blood Banks consider the current FDA ban to be “medically and scientifically unwarranted.” It is estimated that lifting the ban would increase total donations by about 1.4 percent Bloodmobile collecting donations for Children’s Hospital Boston September 15, 2014 Ed Dolan’s Econ Blog
Question: How would changes in
regulation affect the market? Other things being equal, how would relaxation of restrictive regulations affect the market? (Begin from P1 in your answer to the previous question.) Does the demand curve shift? If so, show the new demand curve as D2 Does the supply curve shift? If so, show the new supply curve as S1 Show the new equilibrium price as P2 September 15, 2014 Ed Dolan’s Econ Blog
Answer: How changes in regulation
would affect the market Other things being equal, a relaxation in regulatory restrictions would mean that more blood would be supplied at any given price The supply curve to shift rightward from S0 to S1 as shown here. Other things being equal, such a change in regulation would not affect the demand curve The market moves down along the demand curve as shown until the price falls from P1 to a new equilibrium at P2 September 15, 2014 Ed Dolan’s Econ Blog
Is the price really falling?
There is no single, transparent, market for blood as there is for wheat or crude oil. However, reports from individual market segments show widespread downward pressure on prices Example: Competition between suppliers in Indianapolis has pushed the price down from $220 per unit to $180 or below Example: Downward pressure on blood prices is reflected in falling prices for the stock of companies like Haemonetics Corp., a supplier of software and materials to blood centers One unit of frozen blood plasma September 15, 2014 Ed Dolan’s Econ Blog
The Bottom Line Major
market participants are treating the decrease in blood prices as permanent, not temporary The combination of better surgical techniques, lower infection risk, and lower prices makes this a good news/good news story for consumers For a more detailed account of developments in the blood market, see Ed Dolan’s Econ Blog for Sept. 15, 2014 September 15, 2014 Ed Dolan’s Econ Blog
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