Tuesday, January 19, 2010

Demand for H1N1 Flu Vaccines

Given the potential impact of H1N1 flu around the world, there has been a significant increase in the demand for H1N1 flu vaccines. In a brief article in the Financial Times, we see that supply and demand are key features (along with government policy) in allocating H1N1 flu vaccines.

Given that the demand for H1N1 flu vaccines has shifted to the right, we see that H1N1 flu vaccine producers are increasing their production of the vaccine (movement along the supply curve for H1N1 vaccine) and pharmaceutical firms profits are increasing.

We also note that issues in allocating H1N1 flu vaccines due to production shortages - not enough H1N1 flu vaccines in the very short run - are occurring, and how future shortages due to price floors are yet to be addressed.

The market is not perfect, but it does solve the allocation problem rather efficiently. With production shortages and price floors for H1N1 flu vaccines, the allocation issue is not as efficiently solved. Who gets the first run of vaccine production? How is this determined? The benefit of the marketplace is that consumers can answer these questions by deciding with their money. Yes, this is imperfect - especially for those without the money to vote. But the market system does allow a more efficient allocation of H1N1 flu vaccines in the sense that those that "demand" H1N1 flu vaccines the most will be willing to pay for the vaccine, while those that do not "demand" the vaccine will be willing to wait or not consume at all.

No comments: