Question

Explain. (LUT, LUJ, LUS 14. You are the manager of an organization in America that distributes blood to hospitals in all 50 states and the District of Columbia. A recent report indicates that nearly 50 Americans contract HIV each year through blood transfusions. Although every pint of blood donated in the United States undergoes a battery of nine different tests, existing screening methods can detect only the antibodies produced by the body's immune system-not foreign agents in the blood. Since it takes weeks or even months for these antibodies to build up in the blood, newly infected HIV donors can pass along the virus through blood that has passed existing screening tests. Happily, researchers have developed a series of new tests aimed at detecting and removing infections from donated blood before it is used in transfusions, The obvious benefit of these tests is the reduced incidence of infection through blood transfusions. The report indicates that the current price of decontaminated blood is $60 per pint. However, if the new screening methods are adopted, the demand and supply for decontaminated blood will change to Od = 210 - 1.5P and O' = 2.5P - 150. What price do you expect to prevail if the new screening methods are adopted? How many units of blood will be used in the United States? What is the level of consumer and producer sur plus? Illustrate your findings in a graph. (LO2, LO3)

Answer 1

The price that is expected to prevail would be

Qd = Qs

that is demand should be equal to supply

SO, 210-1.5P = 2.5P - 150

4P = 360

P = 90

Qd = 210 - 1.5 P

Qd = 75 units

The level of consumer and producer surplus is illustrated with the help of chart and data in the table:

Chart Title 60 70 80 90 100 110 120

The orange line represents quantity supplied and blue line represents quantity demanded.

Price quantity demanded quantity supplied 120 105 90 90 75 100 100 110 120 150 125