Question

2. Trafficking in Illegal Merchandise: Over the past few years, there has been arguments made for markets in which organs can be transacted for transplant patients. Suppose the demand for a human organ (kidneys) can be represented by qP = 50 - p where the price is measured in thousands of dollars. Additionally, suppose the marginal cost of these goods is constant at 10. (a) Graph this market. Given that transacting in human organs is illegal (and enforced), what is the expected quantity that will be transacted? Give an value and interpretation of the welfare loss at this quantity. (b) Suppose some individuals are willing to go around the law and provide these goods provided they are compensated for the risks they incur in procuring the goods. Suppose the supply relation is 98 = p - 104 Graph this market. What will be the quantity transacted on this illegal market? Give a value and interpretation of the welfare loss at this quantity 2 (c) If transacting in human organs were legalized and competition among suppliers ensued, what market price and quantity would prevail? Is the market operating efficiently? Assume qe cannot be less than zero. "HINT: Recall what the supply curve represents and what costs are derived from the legal status of the market. (d) What types of issues must be considered before such a market is legally sanctioned? Briefly discuss the types of externalities which should be considered before such a move is made.

Graph also needed

Answer 1

a) Market equilibrium for a profit maximising firm occurs where MR=MC

Though it is illegal to trade in human organs but as per law of economics ,we will find Equilibrium quantity and price as follows-----

odification boch they should put BA! increased com 76 GRAPH (a) explontana PRICE (000$) Me AR=P 10 20 30 40 MR 50 QUANTITY CHUMAN ORGE CRIDNEY) GRAPH (b) PRICE got (000 $ 47 totes 10 20 30 40 50 60 QUANTITY KIDNEY CHUMAN ORGANS) NOVEMBER S M T W T F 1 2 3 4 5 6 8 9 10 11 12 13 15 16 17 18 19 20 22 23 24 25 26 27 29 30

Qd= 50-p

p=50-q

pq=TR= 50q-q2

MR= Derivative of TR----

MR= 50-2q

MC= 10( given)

At Equilibrium=

50-2q=10

q= 20 units

So ,expected Quantity that will be transacted is 20

Calculating value of welfare loss--------

First we will find socially optimal quantity where Price(p)= MC

See the graph(1), we find that at point E¹, AR(demand) curve intersects MC curve .zit determines Quantity = 40 units.

So welfare loss is ------

Difference between socially optimal and profi maximixing Quantity

40-20= 20 units.

b) In this part, Supply equation is also given

So, the Equilibrium Point will occur where Qd=Qs

Qd= p-10,Qd=50-p

p-10=50-p

p=30

Putting p in any of above equations-----

q= 20 units

Making schedule for easing graph (b)-----

p. Qd. Qs

10. 40. 0

20. 30. 10

30. 20. 20

40. 10. 30

See the graph (b)------

We find that Qd and Qs curves intersect at point E², so the quantity ( Equilibrium)= 20 units .

So, 20 units is the Quantity transacted on this illegal market.

Value of welfare loss at this quantity is same as calculated in part (a),that is 20 units

(C) If transactions in human organs were legalised , competition among suppliers ensued, the market price and quantity prevailing will be either -------

Where MR=MC or

Qd=Qs

That is 20 units

Equilibrium price as per market Equilibrium will be $ 30000( see graph b)

* These markets are not operating efficiently Because, socially optimal Quantity is 40 units while profit maximising quantity is 20 units.

So, there occurs welfare loss.

(d)If such markets are legally sanctioned , there are a lot of issues which are to be considered-----

* It will cause chaos in the system as these markets are immoral.

* It will lead to commodification of human body parts.

* Inreased crime rate

* Exploitation of the poor

* Coircion of needy people

* Leafing to slavery

* Malpractices if people engaged in selling and buying of kidneys.

Compelling people to pay costs that they should not have to pay.

# Type of externality which should be considered before such move-------

There will be negetive externality when kidney will be bought and sold legally because its not dead people whose kidney will be sold but alive ,needy and helpless people will be compelled to sell their kidney for handsome amount, the cost for such kidney will be the decrease in chances of being alive with only one kidney and loss of immunity forever after losing one body organ.

Though the life of one person is saved when a kidney is transplanted to him, but people prefer healthy kidney of a living person..,which is immoral.