How Markets and Prices Allocate Resources - Extending the Price Mechanism

Select one market to write about and complete the questions below:
a) The Blood Market - https://www.bbc.co.uk/news/business-46197271

b) The Drugs Market - http://www.theweek.co.uk/59417/pros-and-cons-of-legalising-drugs-

in-the-uk

Which market are you researching?

The blood market

Question 1:
Briefly describe the current situation in the UK (how resources are produced and allocated)
Blood donations are unpaid for

Question 2:
Briefly explain how the market (price mechanism) could be extended/used for this good.
The signalling function would help clinics and firms that take plasma know how much they should
be getting and the prices they should be paying to donators in countries where you can get paid
for donating.

Question 3:
Explain the main economic arguments for introducing the price mechanism in this market. [what
are the economic benefits?
With rising demand in the world for plasma allocative efficiency would allow for firms to allocate
resources where they can make highest returns and pump that money back into the economy,
especially for countries like the UK where the health sector is run by the government. The plasma
market is also predicted to be worth $44.3bn by the end of 2023, increasing output by the
incentive function would also allow for exports to increase.

Question 3:
Explain the main economic arguments against introducing the price mechanism in this market.
[what are the likely economic problem?]
There would be inequality, already asking the question if they should start charging people for
plasma in the UK would create a gap between those that can afford it and those that can’t.

Question 4:
What other potential benefits and problems could the introduction of the price mechanism
bring? Consider the longer-term impacts and the social impacts.
Negative externalities – the increase in exports leads to an increase in quantity and frequency of
shipments globally increasing pollution. However consumer sovereignty, an increase in the overall
supply of plasma could prevent a shortage in the future when demand reaches an all time high.

Question 5:
Given the points you have considered above - should the price mechanism be introduced to this
market? Justify your answer.
Although there are downsides, for example, there would be inequalities and possible issues with
the quality. I think the price mechanism should be introduced into the blood market as it would
allow private firms to enter the market and increase the supply of blood in a market with ever
growing demand. And would also let firms make profits. It would also allow for governments to
pump money back into the market and increase R&D.