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Supply and demand for decontaminated blood

A recent report indicatesthat nearly 50 Americans contract HIV each year through blood transfusions.Although every pint of blood donated in the United States undergoes a batteryof nine different tests, existing screening methods can detect only the antibodiesproduced by the b0dyâ??s immune systemâ?"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 ofnew tests aimed at detecting and removing infections from donated blood beforeit is used in transfusions. The obvious benefit t 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 newscreening methods are adopted, the demand and supply for decontaminatedblood will change to Qd = 175 â?" P and Qâ?? = 2P â?" 200. What price do youexpect to prevail if the new screening methods are adopted? How many units ofblood will be used in the United States? What is the level of consumer and pro-ducer surplus? Illustrate your ?ndings in a graph

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Solution Preview

To find the equilibrium price, we set Qd = Qs:
2P - 200 = 175 - P
3P = 375
P = 125
Thus we know that the new price will be $125 per pint.

To find the quantity demanded, we can insert this price ...

Solution Summary

Economic considerations of screening the blood supply for HIV.