Health Economics Assignment PDF
Added on 2021-04-21
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Running Head: Health EconomicsHealth EconomicsApplication and Policy
Health Economics1Question 1a) (i) Why do you think these shortages exist?Dialysis is very expensive and provides a lower life expectancy as well as life quality thanorgan transplant. With the increase in cases of kidney and liver failures due to the lifestyleof the people, the demand for organs increased back then[ CITATION Ahm16 \l 16393 ]. Thedemand had been increasing constantly while the supply is did not respond much. Evenwhen there was a huge scope for kidney donation, since each person has two kidneys and itis absolutely adequate to survive with one, there was shortage. Factors responsible for theshortage included ethical complications. People were reluctant to donate even in the caseof cadaveric donation. Even if there was consent given by the dead, the relatives werereluctant[ CITATION Gho11 \l 16393 ]. On the other hand, there was incentive problem for thedonors. Since the selling of organs was illegal, there was a very low compensation providedto the donors. They did not have an incentive to undergo a surgery and the opportunity costassociated with it was high. Also, there was lack of awareness among the people and mythswhich prohibited them from taking part in the noble cause.(ii) Suppose quantity demanded of organs (e.g. kidney) goes up with price. Can you thinkof a reason why demand for organs would defy the Law of demand? If organ wasavailable in a free market, how would the shortage be reflected in a supply-demandframework, where demand for an organ is upward sloping? Explain using an appropriatelylabeled diagram.As per the law of demand, ceteris paribus, demand for organs will decrease with theincrease in the price. For the given case, plausible reasons could be the lifestyle of thepeople. Unhealthy lifestyle leads to greater kidney and liver failure. When the alcoholconsumption of the people increases, the chances of liver and kidney failure increase. Same
Health Economics2is the case with smoking[ CITATION Ish10 \l 16393 ]. When the cigarette consumption of theconsumer increases, so does the probability of organ failure. All this leads to increase in thedemand of the organ transplant even when the price constantly rises. The supply does notrespond to the ever increasing demand and is pretty much constant.Free market solves the problem of incentive[ CITATION Wal11 \l 16393 ]. Free market lets themarket forces determine the price for organ. In the given figure, initially the supply is lowwhile the demand curve is high. The initial quantity was Q and price the price is fixed low atP. There is a demand gap. But in case of free market and when the demand curve isassumed to be upwards sloping, the equilibrium is attained with the interaction of marketforces. It is achieved at E. The equilibrium price P’ and equilibrium quantity Q’. Both priceand quantity have increased. With the increase in prices, people will have an incentive todonate[ CITATION SLe10 \l 16393 ]. Suppliers will be attracted towards the market and theshortage will be reduced. Higher price in the market on the other hand will also induce thepeople to improve their lifestyle and avoid the organ failure since it is expensive to have anorgan transplant.
Health Economics3Figure 1: Free market with upwards sloping demand curve(iii) Continuing with this hypothetical case (of a market for organs), do you expect themarket demand curve for organs to be price elastic or price inelastic? What about thesupply curves? Explain why.Demand curve in the hypothetical case will be inelastic. This is because people requirekidney transplants to survive and increased price will not affect the quantity much. Peoplewill require organs irrespective of the price rise. On the other hand, supply will be highlyelastic. This is because initially there was an incentive problem. Now with the increasedprices, more donors will be attracted and will enter the market and vice versa. This willeventually increase the supply in the market. b)“We should allow a market for human organs where purchase and sale of organs fortransplant surgery can be conducted just like any other economic goods.” Do you agree or
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