You are the manager of an organization in
America that distributes blood to hospitals in all 50 states and the
District of Columbia. Arecent 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 bodys immune systemnot 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 $80 per pint. However,
if the new screening methods are adopted, the demand and supply for
decontaminated blood will change to Qd = 175 P and Qs = 2P 200. 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 surplus? Illustrate your findings
in a graph.
Answer : Qd = 175 P Qs = 2P 200 Qd = Qs at equilibrium So, 2P – 200 = 175 – P 3P = 375 P = $125.00 Qd = 175 – 125= 50 Qs = 2(125) – 200= 50 Qd = Qs = 50units at the equilibrium price of $125. The consumer surplus is represented by the area between the demand curve and a horizontal line across from $125.00 to the point where the curves intersect, the equilibrium…

price. The producer surplus is represented by the area between that horizontal line across from $125.00 and the supply curve. Hence, Consumer surplus = Area (AOC) = 1/2 * (175-125) * 50 = 1250 Producer surplus = Area (BOC) = 1/2 * (125-100) * 50 = 625