Kidney Markets?

Sep 8, 2010 • Demand, Supply, and Markets, Regulation, Thinking Economically • 354 Views    3 Comments

What should we be able to buy and sell? Alcohol? Land? People? Body Parts?

In a Teaching Company lecture on organ transplants, Wake Forest economist Robert Whaples says that the answers depend on the market’s boundaries. And, he soon adds, those boundaries change. Prohibition, for example, transformed the price, demand, and supply of alcohol between 1918 and 1933.

Dr. Whaples asks whether a similar change should happen for organ transplants. Describing current shortages, he says that the demand side of the market, with insurance covering the expense, is considerable. By contrast, on the supply side, with altruism the key incentive since selling body parts is illegal, the hearts, lungs, kidneys, intestines that certain people need, are insufficiently available.

That returns us to the market. Whether looking at human transplants or the viability of the housing market, we seem to keep on returning to how much we want to permit unfettered supply and demand.

Should we be able to buy and sell kidneys if it will diminish massive shortages?

The Economic Lesson

When demand and supply interact, they allocate resources. If they are interacting successfully, then resources are allocated efficiently. Sometimes, though, markets fail. For example, when a factory pollutes, we can say we have market failure because the cost of pollution has been ignored by the price. We also have market failure when government partially affects the market’s boundaries through subsidized housing or a minimum wage. Finally, as with organ transplants, those boundaries can completely eliminate the market.



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