Question

Adapted from “Waiting lists continue to grow at a rate that far outstrips organ supply, and many people die waiting for a kidney or liver”. All countries, including Australia, have far more people on organ waiting lists than available donors. At the beginning of 2015 in Australia over 3000 people were waiting for organ transplants, and by the end of April, only over 150 people had donated organs, allowing 350 people to receive transplants (one donor usually provides several organs). Waiting lists continue to grow at a rate that far outstrips organ supply, and many people die waiting for a kidney or liver. Commentators, health economists and policy makers around the world have made a variety of proposals about how to solve organ shortages. Some health economists argue the de-regulated market (ie allow the free market) for transplant organs is the best way to improve supply. Currently in Australia and most part of the world, organs are treated as 'gifts'. Organs must be donated without payment (ie Ps = $0 for all donations), and distributed according to clinical need rather than ability to pay. This gift system helps to protect both donors and recipients from coercion, and distributes organs fairly.

(Adapted from “Waiting lists continue to grow at a rate that far outstrips organ supply, and many people die waiting for a kidney or liver”.)

1) Currently, the donors and their relatives receive no compensation for the organ donations (ie Ps = $0 for all donations), if the government changes its policy and allow human organs to be traded, what would happen to the supply of organ.

2) Is the demand for human organs such as liver, kidney, lungs, eye price elastic or inelastic?

3) Hospital A, a private institution which is specializing in organ transplant requires to raise more funds (I e Total Revenue) to upgrade its equipment, should Hospital A :

a) raise its price; or

b) hold it price or

c) Drop its price.

Use a diagram to demonstrate and explain the case.

4) Do you think that if the government allows a free market system for organ transplant is fair?

Answer 1

1. The supply of the organs would increase. Let's analyze why? A donor who donates organs like Kidney donates it voluntarily without any tangible incentive at his disposal. In case of Liver, usually the donor donates after his death by signing a legal contract while he is alive. In both the cases, there isn't any incentive for the people to donate except for humanitarian reasons. And in a country, we can't expect everyone to donate on an humanitarian basis although we would want that. So, by establishing a trade system, we are providing an incentive for the person to donate his/her organ before/after his death. The money shall reach the heirs in case the person is dead. From the point of view of organ seekers, since the supply is increased they have a greater chance to receive organs and avoid waiting lists on their ability to pay. It's simple. When a trade is introduced, the demand and supply will slowly move towards achieving an equilibrium.

2. The demand is price inelastic, i.e. no matter whatever the price change the demand remains almost the same. The reason is the patient wants to live and he/she doesn't mind spending money to be alive or at least lead a better life. In case of poorer households this might not be the case. The patient just lives with the failed organ and perishes eventually so that he/she is not a burden anymore.

3. In this case, the hospital must raise the prices. Raising the prices essentially means that the total revenue increases so that a part of this revenue can be utilized to buy the necessary machinery. Take a look at the graph below for the intuition on the scenario.

As you can see the demand curve is moved upward slightly yielding an additional revenue of ½(QE - Q)×(PE - P) owing to the shift in the equilibrium price.

4. Well this is a very skeptical question to say the very least. The fundamentals of a medical system should not be driven by money, i.e. everyone without any demarcation on class, creed should be provided with healthcare equally. I believe that it would be unfair as the affluent people would be easily having organ transplants when compared to poor. A regulated system of health policies needs to address this grave issue.

Hope this helps. Do hit the thumbs up. Cheers!