The Looming Blood Surplus: A Case Study in Supply and Demand

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Demand for blood transfusions is falling, forcing down prices and reshaping the market. Case study suitable for classroom use

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The Looming Blood Surplus: A Case Study in Supply and Demand

  1. Economics for your Classroom from Ed Dolan’s Econ Blog The Looming Blood Surplus: A Case Study in Supply and Demand September 15, 2014 Terms of Use: These slides are provided under Creative Commons License Attribution—Share Alike 3.0 . You are free to use these slides as a resource for your economics classes together with whatever textbook you are using. If you like the slides, you may also want to take a look at my textbook, Introduction to Economics, from BVT Publishing.
  2. 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
  3. 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
  4. 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
  5. 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/
  6. 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
  7. 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
  8. 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
  9. 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
  10. 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
  11. For more slideshows and commentary, follow Ed Dolan’s Econ Blog Like this slideshow? Share it on Twitter Follow @DolanEcon on Twitter Click here to learn more about Ed Dolan’s Econ texts or visit www.bvtpublishing.com

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