Economics for your Classroom fromEd Dolan’s Econ Blog

The Looming Blood Surplus: A Case Study in

Supply and DemandSeptember 15, 2014

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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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