When British regulators were forced to suspend the license of a flu vaccine plant in Liverpool operated by the Chiron Corporation due to concerns over bacterial contamination, the number of flu vaccines available in the U.S. market decreased by 48 million doses. This was nearly half of the total supply of vaccines in the market. Use a supply and demand diagram to illustrate the impact of this event on the market for flu vaccines in the United States. What impact will this have on the equilibrium price and equilibrium quantity in the U.S. vaccine market?
When British regulators suspended the license of Chiron Corporation’s flu vaccine plant, it caused a significant decrease in the supply of flu vaccines in the U.S. market. This can be analyzed using the supply and demand model.
Supply and Demand Diagram (Description):
- The vertical axis represents price.
- The horizontal axis represents quantity.
- The original supply curve (S₁) and demand curve (D) intersect at the original equilibrium point (E₁), determining the original equilibrium price (P₁) and quantity (Q₁).
- The suspension leads to a leftward shift of the supply curve from S₁ to S₂, representing the reduction in available vaccines.
- The new supply curve (S₂) intersects the demand curve at a new equilibrium point (E₂), with a higher equilibrium price (P₂) and a lower equilibrium quantity (Q₂).
Explanation:
The suspension of Chiron’s vaccine plant immediately reduced the U.S. flu vaccine supply by 48 million doses—about half of the total supply. This represents a negative supply shock, where the quantity of vaccines available at every price level decreases.
In the supply and demand model, such a shock is illustrated by a leftward shift of the supply curve. Since demand for flu vaccines is relatively inelastic—especially during flu season when people urgently need protection—the quantity demanded does not fall much even when prices rise. This mismatch causes the price of vaccines to increase significantly while the quantity available to consumers decreases.
At the new equilibrium:
- The price increases due to scarcity.
- The quantity decreases, meaning fewer people receive vaccines.
This creates public health concerns as more individuals remain unvaccinated, raising the risk of a flu outbreak. Additionally, it may lead to rationing, longer wait times, and pressure on public health agencies to find alternative sources or implement prioritization strategies.
In summary, the disruption caused by the Chiron plant’s closure led to:
- A leftward shift of the supply curve,
- A higher equilibrium price,
- A lower equilibrium quantity of vaccines in the U.S. market.