Monday, July 16, 2012

Local Blood Bank Shortage

Recently the Daily Iowan reported that there is a shortage of blood donations during the summer months - and the reason is supply and demand, specifically supply.  The blood bank relies heavily on student donations and when students are away during the summer, the demand for blood is greater than the supply - hence the shortage.  You can think of this as the supply curve for blood donations shifting to the left and crosses the demand curve where the market price would be positive.  Since the price of blood donations is zero the difference between the demand and supply curves on the horizontal axis is the quantity of the shortage.

As discussed in my Prin. of Microeconomics class, one way that firms can get rid of shortages is to change prices such that the market clears and the quantity supplied equals the quantity demanded.  This would eliminate the shortage.  As mentioned in the article, "[t]he Mississippi Valley Center is trying to encourage donations by offering such incentives as T-shirts and a chance to win a $50 gas gift card to those who donate ..." {emphasis added}.  Since the price of blood donations is zero, the alternative is barter (t-shirts or gift cards in exchange for blood) - which is effective for those who want a t-shirt or a chance to win a gift card.  Also as mentioned in my Prin. of Micro course, barter is significantly inefficient as compared to money transactions.

Also mentioned in class, one solution is to set the price of blood donations above zero to increase the quantity supplied of blood for those in need, but instead giveaways seem to be the current practice.

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