Question

A persistent problem facing our society is the use of illegal drugs, such as heroin. Drug use has several adverse effects. One is that drug dependence can ruin lives of drug users and their families. Another is that drug addicts often turn to robbery and other violent crimes to obtain the money needed to support their habit. To discourage the use of illegal drugs, the U.S. government devotes billions of dollars each year to reducing the flow of drugs into the country. Let's use the tools of supply and demand to examine this policy of drug interdiction.  

Suppose the government increases the number of federal agents devoted to the war on drugs.

a. Is the demand curve for illegal drugs elastic or inelastic?

b. Will the supply curve for illegal drugs shift to the right or the left?

c. Will the new equilibrium price increase or decrease after the shift?

d. Will the total revenue for drug dealers increase or decrease because of this?

e. Will the change in the price of illegal drugs cause more or less illegal activity?

Suppose the government instead pursues a policy of drug education in schools.

a. Is the demand curve for illegal drugs elastic or inelastic?

b. Will the demand curve shift right or left after the drug education takes effect?

c. What will happen to the equilibrium price after this shift?

d. Will this increase or decrease total revenue for drug dealers?

e. Will this increase or decrease related criminal activities of drug users?  

Answer 1

a. The drug addicts will always have inelastic demand due to their addiction even though the price soars up.

b. When the government restricts the selling of drugs, the quantity supplied of drugs reduces. This shifts the supply curve to the left.

c. Without any change in demand, the fall in supply will increase the equilibrium price.

d. When the demand is inelastic, any increase in price will increase the total revenue for drug dealers.

e. The increase in price is expected to increase the illegal activities. This is because, as the drug addicts do not have income, they depend to a great extent on stealing the money. Increase in price will worsen the situation by making them to steal more.

a. The demand will be inelastic.

b. The drug education brings about changes from within. Thus, the demand for drugs falls, i.e. , shift's to the left.

c. Without no changes in supply, the fall in demand will decrease the equilibrium price.

d. The total revenue falls with the fall in demand.

e. Unlike the federally agents scenario, when the drug education is provided, the criminal activities are expected to come down.