Question

Topic: Illegal Drugs

Consider moving only the supply curve to the left. What is the relative effect on price versus quantity? Now consider moving only the demand curve to the left by the same amount. What is the relative effect? When demand is inelastic, reducing supply has little effect on quantity and a large effect on price. Consequently, some economists argue that the "war on drugs" (i.e. supply interdiction) is a misguided policy, which has no effect on sales and also increases crime because of the price increase.

Answer 1

Moving only on the supply curve to the left will increase the equilibrium price in the market leading to a fall in demand as well because of the reduced supply of goods in the economy.

Moving only on the demand curve to the left by the same amount will induce the sellers to reduce the price of the product due to low demand. It will lead to a fall in equilibrium price and equilibrium quantity.

However, if the demand is reduced by the same amount as the supply was reduced then there will be no change in the equilibrium price whereas there will be a fall in equilibrium quantity.

When demand is inelastic, the demand curve will be vertical and parallel to the y-axis. Inelastic demand means that consumers will purchase the same quantity irrespective of the price. So, that is why a reduction in supply will result in a negligible change in equilibrium quantity and relatively a big fall in price.

A supply interdiction of drugs will lead to a reduced supply of drugs which in turn will increase the price of drugs in the market. Since some people are addicted to drugs, an increase in price of drugs will have no effect on sales of drugs because drugs have inelastic demand and drug-addicted people will purchase the same quantity even if there is an increase in the price of drugs. This will lead to an increase in crime rates because drug-addicted people will indulge in some illegal activities to have some money in their hand and purchase drugs from that amount.