Question

If we accept the argument that the use of addictive drugs tends to lead to an increase in other types of crime because users of such drugs tend to commit other crimes in order to fund their drug habit,Explain, using the concept of elasticity of demand and a well labelled diagram, why a policy of prohibiting the sale of such drugs is not likely to reduce crime committed by drug addicts.

Answer 1

Suppose the supply of drugs is given by S1 (figure 1) and the demand for drugs is given by D1. They both intersect at price P1 where Q1 is the amount of drugs sold and consumed. Now, if the government decides to introduce a policy prohibiting the sale of such drugs, then it impacts the supply of the drugs. In particular, it increases the cost of selling drugs, reduces the amount of drugs that are supplied at any given price, thus, shifting the supply curve from S1 to S2. The demand curve still remains the same. This raises the equilibrium price of the drugs to P2 and it reduces the equilibrium quantity from Q1 to Q2. This indicates an overall reduction in the amount of drug consumed.

Figure 1

Since drugs are highly addictive substances, it is highly likely that the demand for such substances is inelastic.

Inelastic demand means elasticity of demand is less than 1. Elasticity = percentage in quantity demanded/percentage change in the price of the quantity.

If elasticity is less than 1, it means the percentage in quantity demanded is less than the percentage change in the price of the quantity. In other words, the prohibition of drugs raises the price of the drug proportionately more than it reduces the quantity of drugs consumed.

Revenue is given by Price*quantity. If price of drugs raises more than fall in quantity of drugs, it means that the total revenue in the drug market has gone up. It increases the amount of money that drug users pay. This would mean that addicts now require even higher amount of money to sustain their addiction. This would lead to an increase in drug-related crimes such as stealing.

Therefore, we say that a policy of prohibiting the sale of drugs is not likely to reduce crime committed by drug addicts.

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