Health Economics: Organ Shortage and Hypochondriasis

Health Economics
a) (12 points):
(i) (4 points): Why do you think these shortages exist?
The organ shortage crisis has deprived patients of a better quality of life and has caused a
substantial rise in the cost alternative medical care i.e. dialysis. The following are some of the
reasons why organ shortage exists:
There has been a stream of media reports that give people the impression of widespread
malpractice by the medical fraternity and the funeral and biomedical industries. A number of
reports on court hearings involving organ malpractices have soared in recent times making it
hard for individuals to shun organ donation (Folland, Goodman & Stano, 2016).
Public awareness efforts have done little to improve donation rates in America and in other
countries. This being the best and easiest option to raise the number of donors, little has been
done in the area of public awareness.
The laws available are against allowing the market to function in order to get supplies to
people. Where there is government interference and the suppliers are not allowed to sell to
meet the demand then automatically shortages appear, this is what happens with the organ
industry especially that of kidney (Smith et al, 2013).
The disincentive factor. This comes along with financial obstacles that result in loss of money
for the donor including the loss of income while off work after the procedure. Potential future
insurability issues and expenses may also not be covered by insurance after the procedure.

Figure 1: demand and supply of Organ
(Zweifel, Breyer & Kifmann, 2009)
(ii) (6 points): Suppose quantity demanded of organs (e.g. kidney) goes up with price. Can
you think of a reason why demand for organs would defy the Law of demand? If organ was
available in a free market, how would the shortage be reflected in a supply-demand
framework, where demand for an organ is upward sloping? Explain using an appropriately
labeled diagram.
Can you think of a reason why demand for organs would defy the Law of demand?
The law of demand states that the quantity demanded for a good or service rises as the price
falls, this law is an inverse relationship between price and quantity demanded. It is rare that
these laws of demand is violated but there are extreme cases and can be difficult to prove but
there are reasons as to why this law is defied.

This case happens if the high demand is for a quantity they cannot supply, that is, a capacity
shortage. This case of organ shortage can make the demand go up as a few organs are being
sought after by many individuals. In this case the numbers of people after organs should be
high and the supply of organs should be small for this case to take apply (Blau, Ferber &
Winkler, 2013).
In the case that the substitutes available i.e. dialysis are more expensive than transplants in
the long run then demand for organs will keep on rising despite the increases in prices of
these organs. If the rise in price is still below that of substitutes then such a scenario can take
place where the law of demand is defied (Zweifel, Breyer & Kifmann, 2009).
In situations where there are no substitutes in the case of a disease then demand for organs
can defy the law of demand, that is, the demand for organs will increase if the price
increases. If substitutes are not available then options are limited and patients are subjected to
one product which makes it possible for this law to be defied.
Demand elasticity
If organ was available in a free market, how would the shortage be reflected in a
supply-demand framework, where demand for an organ is upward sloping?
Most consumers prefer to pay low prices for goods and services, this holds in the case where
the law of demand is upheld. The demand curve on a graph in this case slopes downward and
to the right to show a rise in the demand as prices decline.
This law of demand has loopholes where in a few cases the demand of a product increases
with increase in prices, where the demand curve would slope upwards. There are two reasons

as to why such a graph would have a demand curve that has an upward-sloping which are;
conspicuous consumption and products known as giffen goods.
Figure 2: Price and demand
(Fuchs, 2011)
(iii) (2 points): Continuing with this hypothetical case (of a market for organs), do you
expect the market demand curve for organs to be price elastic or price inelastic? What
about the supply curves? Explain why. (Draw the supply and demand curves in part (ii)
keeping in mind these elasticity)
The market demand curve for organs will be price elastic. In a free market, the law of
demand and supply are allowed to operate freely. It is also characterized by many suppliers
of organs and many buyers. Because there are many suppliers of the organs, the price of the
organs will indirectly affect the demand, such that a supplier whose organs are expensive
may face low demand. A price elastic demand is where the demand changes when the price
fluctuates (Eggleston et al, 2008).
On the other hand, the supply curve would be price elastic also. The suppliers would sell
more organs if the price goes up and will be willing to supply less if prices go down.