Supply and Demand Essay

Recent medical advances have greatly enhanced the ability to successfully transplant organs and tissue. Forty-five years ago the first successful kidney transplant was performed in the United States, followed twenty years later by the first heart transplant. Statistics from the United Network for Organ Sharing (ONOS) indicate that in 1998 a total of 20,961 transplants were performed in the United States. Although the number of transplants has risen sharply in recent years, the demand for organs far outweighs the supply. To date, more than 65,000 people are on the national organ transplant waiting list and about 4,000 of them will die this year- about 11 every day- while waiting for a chance to extend their life through organ donation (Yoakam 1). This figure, when looked at from an economic standpoint, exemplifies a case of supply and demand between organ donors and patients “with a diseased organ”. Just as there is a supply and demand in any given market, there are also complementary and substitute goods. Who decides who gets transplants and who doesn’t? This question implies that the organ market also needs to have various, effective allocation mechanisms. The organ market has complementary and substitute goods and can use various effective allocation mechanisms.

A person that receives an organ transplant almost always requires several complementary goods. One obvious good is the medical care received for the actual transplant and for follow-up doctor’s visits. For most people who undergo an organ or tissue transplant the quality of their life and general overall health improves following the transplant. Persons who receive a transplant are frequently required to take a series of medications that suppress their immune system and prevent their body from rejecting the newly acquired organ. They often will need to undergo frequent medical visits and testing to monitor the transplanted organ. At times, the organ transplant will be unsuccessful and the organ may need to be removed. These people will be placed back on the waiting list for another organ (Yoakam). Two more goods are the medication to prevent rejection and (assuming the patient has insurance) payments made by the patient’s insurance company for the patient’s care. The donor’s family is not responsible for the costs incurred through organ donation. The recipient, most times through their insurance carrier or Medicare pays for all of the costs related to the donation of organs and tissue. If the “price” of organs increases (whether due to an increase in demand or decrease in supply) the demand for the complementary good will decrease.

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The converse of a complementary good is a substitute good. In the organ market, a substitute good really depends on what organ is being considered. “People with diseased livers [are] particularly at risk because there is no medical alternative to transplantation for keeping a patient…alive.” The only two obvious substitute goods for a liver transplant would be extensive medical care and pain medications. On the other hand, someone with diseased kidneys has more options. One obvious option would be dialysis. But, when looked at as a whole, the organ market does have substitute goods. If the “price” of organs increases (whether due to an increase in demand or decrease in supply) the demand for the substitute good will increase.

Since the National Organ Transplant Act of 1984 prevents a monetary price from being placed on a donated organ, effective allocation mechanisms must be utilized. Allocation mechanisms must be accessed because the shortage of supply compared to the demand. In any market, allocation mechanisms rely on many factors but some include friendships, “under the table” payments, predicted profit, and personal biases.

In the organ market, several allocation mechanisms come to mind. There is always the possibility that a particular patient has a family member or friend that is in the organ transplantation profession, and/or the family of the patient is able to “pay-off” someone in charge of the distribution of organs. In reality, these two mechanisms are frowned upon for their “lack of morality.” One real possibility for an allocation mechanism is to make a “waiting list” on a first-come first-served basis. This method would only be for those who, in a panel of doctors’ professional opinions, had a chance to survive after the transplant. In other words, those dying with cancer along with a diseased organ would not be on the list. During the week of April 14, 2000, National Oragan and Tissue Donor Awareness Week, the President of the United States gave a proclomation. In this he stated, “To address this critical and growing need, Vice President Gore and Secretary of Health and Human Services Shalala launched the National Organ and Tissue Donation Initiative in December of 1997. This public-private partnership was designed to raise awareness of the success of organ and tissue transplanta-tion and to educate our citizens about the urgent need for increased donation. Working with partners such as health care organiza-tions, estate planning attorneys, faith communities, educational organizations, the media, minority organizations, and business leaders, the Initiative is reaching out to Americans of all ages, backgrounds, and races, asking them to consider donation. In its first year alone, the Initiative made a measurable impact, as organ donation increased by 5.6 percent.”

Although morals can play a part in the organ market, economic principles are definitely present. All of the aforementioned material is based on ceteris paribus. Complementary and substitute goods are associated with the organ market. These goods, although varying with different organs, are affected by the “price” of organs just like any other market. Since there is a shortage of supply compared to the demand, allocation mechanisms are necessary. Some of these mechanisms can be “morally bound.” Since a person’s life is on the line in this market, any dead-weight loss at all is a serious matter. One can only hope this market is more concerned for life than it is for economic benefits.

Yoakam, Diane M. “Organ Donation: The Gift of Life.” 1999.

Supply and Demand Essay

Economics Unit 2: How Markets Work Investigating Price Changes Portfolio Project Part 1: Chapter 6 Wall Street Journal Questions

1) Why are sports teams considering switching to a variable–pricing strategy for tickets? Sports teams are switching to a variable-pricing strategy for tickets so that they can get a higher profit on games with record attendance numbers. They feel the need to do so because the marginal costs, such as construction payment and players’ salaries, did not equal to the marginal revenue, since attendance was severely dropping. To pay for the marginal cost, the sports team needed to capitalize on things that they were sure of, like increasing attendances to games between major sporting rivals.

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2) What would happen if airlines and baseball stadiums priced all seats the same instead of using variable pricing? What would happen to the number of tickets sold? What would happen to the total revenue from ticket sales? Assume stadiums are using variable pricing and aren’t completely sold out or completely empty. What would change if seats were sold at the lowest prices? Highest prices? Variable prices? When tickets are placed at the lowest prices, the law of demand states there would be an increase in ticket sales to the game. The revenue would therefore be higher. If the prices were placed at the highest prices, the demand would be elastic and very few people would be willing to pay for the tickets. They may not be as willing to pay for them because of their budget limitations and their discernments for what is necessity or luxury. The revenue would then be lower. If the market used variable prices, the ticket sales and revenue would increase, assuming that the ticket discrepancies were not pushed very far.

3) Stephen says he skipped the game with rival Toronto because of the price increases. “I do not agree that I have to pay extra to see certain teams,” he says, “I don’t pay less for teams that usually don’t draw.” What do you know about Mr. Duford’s demand to tickets to see the Senators play Toronto? Mr. Duford’s demand to tickets to see the Senators play Toronto is elastic. His demand is sensitive to price changes, so his demand would decrease as price increases. His demand is elastic for many reasons. It could be because he sees the tickets as a luxury rather than a necessity. The tickets do not help his life in any manner other than offering it entertainment.

4) For each article describe causes of changed price and the effects of the changed price. Increase in price: The recent deflation in Japan’s economy has brought paper used for commercial products and home offices to skyrocketing prices. In just the past five months, paper has totaled an increase of 25% of its original price value. Paper producing companies are setting high prices because the value of the yen has dropped and the import costs have risen. Since there are few substitutions for paper and many people need them for daily uses, the demand would be inelastic to the price increase. Companies could therefore produce more paper and gain a higher profit than before. Although demand would theoretically be higher, the economy would not improve much if the companies are not willing to raise their employee’s wages. Income plays a huge role in demand, for few people, if any, would buy products that they could not afford. In addition, as time passes, people would find or develop a substitute for paper, and the demand and quantity supplied would decrease. Price decrease:

U.S. gasoline prices have fallen to their lowest level in nearly 33 months, as Wall Street Journal reported. As a result, the demand has increased significantly to reflect the law of demand. Suppliers are stocking up extra gasoline to meet the consumers’ demands and make a higher profit. In addition, the marginal cost of food delivering companies has decreased, and the costs of these goods have also decreased to equate the marginal costs. If the gasoline prices continue to be low, there would be many new gas companies opening because businessmen would see this as a prime time to get in on the market. The consumers are benefiting from the fall of gas prices in many ways. The income effect makes them feel richer, and they therefore have spare money to spend on other goods. Furthermore, they could use this time to stock up on gas, so that they would not have to pay for it when prices increase in the future.

5) How will the change in prices affect the demand for each product? Because it is an inelastic product, paper would remain at a high demand despite increases in prices. However, there is a possibility that someone discovers a substitution for paper over time. The demand for paper would then be lowered. A decrease in anything, especially something as commonly used as gas, would yield a higher demand because the opportunity costs are little in goods that are affordable. The consumers might even have a bit of extra cash saved to spend on other goods.

6) How will the change in prices affect the producers of each product? An increase in prices would yield a higher profit for the producers of paper, since paper is a rather inelastic good. They would produce more paper to more profit. A decrease in gas prices would also yield an increase in market revenue for producers. Some producers who use gas, such as food delivery services, would have lower marginal costs and would lower costs for consumers. When the markets for any good look profitable, there would be an increase in businesses that sell this product.

7) For each product, has the market equilibrium been reached? Why or why not? Market equilibrium is when the quantity demanded is equal to the quantity supplied. Although, in the case of paper, there is no definite number of quantity demanded and supplied, one could assume that market equilibrium has been reached because the product is inelastic and the demand would remain the same despite changes in price. In the case of gas, the market equilibrium has also been reached. Consumers are constantly demanding gas, and gas companies are constantly stocking up on gas to meet their specific number of demands.

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