Question

Assume that the demand for crack cocaine is inelastic and that users get the funds to pay for crack cocaine by stealing. Suppose that the government increases penalties on suppliers of crack cocaine and thereby reduces supply. What will happen to the amount of crime committed by crack cocaine users.

Answer 1

Elasticity is yhetdegree of responsiveness of quantity demanded to the change in the price of the commodity. The demand for cocaine is inelastic, so, a large change in the price will have a tiny effect on the quantity demanded. For a perfectly inelastic demand, the demand curve is vertical. And for relatively inelastic demand, the demand curve is very steep.

Now, since the users pay for cocaine by stealing. Stealing and using cocaine is complimentary. So, if intake of cocaine increases, the stealing increases and vice versa.

If the demand is perfectly inelastic and the government increases penalties on suppliers of crack cocaine, and thereby reduce the supply. The supply curve will shift to the left and the demand curve will not change. The consumers will now demand the same amount of cocaine at an increased price and thus the amount of crime committed by crack cocaine users also does not change.

However, if the demand is relatively inelastic and the government increases penalties on suppliers of crack cocaine, the supply curve will still shift to the left and the demand curve will not change but the consumers will now demand a decreased amount of cocaine. However, the decrease in supply will be much more than the decrease in quantity demanded. Since, the demand of cocaine decreased, the amount of crime committed by the crack cocaine users will also decrease.