Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.

PART 2 How Markets Work

Chapter 5 of 36 Elasticity and Its Application

Section 21 of 22

…

To discourage sale and use of illegal drugs such as heroin and cocaine the U.S. government spends billions of dollars each year in efforts to reduce the flow of drugs into the country.

What happens in the illegal drugs market if the government increases the number of anti-drug agents and arrests of drug sellers?

We answer with the three steps

· determine whether supply or demand curve shifts

· decide direction of the shift

· consider how the shift affects equilibrium price and quantity

…

The direct impact of drug interdiction is on supply by sellers of drugs not on demand by buyers.

When government stops some drugs from entering the country by arresting more smugglers, it

· raises the cost of selling drugs

· reduces the quantity of drugs supplied at any given price

…

Per Figure 9 panel (a)

· interdiction shifts the supply curve to the left from S1 to S2

· demand remains the same so demand curve is unaffected

· equilibrium price of drugs rises from P1 to P2

· equilibrium quantity falls from Q1 to Q2

The fall in equilibrium quantity shows drug interdiction reduces drug use.

…

How is amount of drug-related crime affected?

Consider the total amount drug users pay for the drugs.

Experience has shown demand for drugs is inelastic as indicated by the steep slope of demand curve.

This means few addicts will give up drugs because of a higher price caused by the decreased supply.

…

When demand is inelastic, an increase in price raises total revenue.

Drug interdiction raises the price of drugs proportionately more than it reduces drug use.

So, it raises the total amount of money drug users pay and total revenue for drug dealers, from smaller yellow P1-E1-Q1-0 rectangle area to larger green  area P2-E2-Q2-0

…

Drug interdiction also increases drug-related crime.

Addicts already stealing to pay for drugs have increased need for money and will steal more.

Because of the increased revenue return, suppliers are willing to risk becoming more unlawful and violent.

… …

experience has shown

keiken kara

経験から


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