Consider the hypothetical supply and demand of Kidneys. Initially, kidneys are exchanged by donations only (price=0). If the government decides to legalize kidney sales and the market reaches equilibrium, then:
A) total surplus increases.
B) consumer surplus remains the same.
C) producer surplus remains the same.
D) a shortage of kidneys will arise.

Question

Consider the hypothetical supply and demand of Kidneys.  Initially, kidneys are exchanged by donations only (price=0). If the government decides to legalize kidney sales and the market reaches equilibrium, then:
A) total surplus increases. 
B) consumer surplus remains the same. 
C) producer surplus remains the same. 
D) a shortage of kidneys will arise.

Quizplus · Accepted Answer

Legalizing kidney sales would allow the market to reach equilibrium with a market price that reflects the true value of kidneys. This would result in an increase in the quantity of kidneys supplied and demanded, leading to a larger overall quantity exchanged. As a result, total surplus (which is the sum of consumer surplus and producer surplus) would increase. It is unlikely that there would be a shortage of kidneys as increasing the price would incentivize more individuals to donate or sell their kidneys.

Consider the Hypothetical Supply and Demand of Kidneys