ECON 0858 Temple University Legalized Marijuana Liquor & Tobacco Questions

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Economics

econ 0858

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some questions ask for your opinion and have no right or wrong answers. For those questions, you get zero points if you do not answer the question, 5 points if you answer the question but do not clearly explain your answer, and 10 points if you answer the question and explain your answer. Other questions require you to provide correct answers and are also graded zero, 5 or 10 points: zero points if you do not answer the question, 5 points if you answer the question incorrectly, and 10 points if you answer the question correctly.

1. (0, 5, or 10) Explain how the elasticity of demand for drugs is important in the debate about legalization of presently illegal drugs?

2. (0, 5, or 10) In recent years, about twenty states have passed so-called medical marijuana laws. Typically, these laws permit individuals to lawfully purchase marijuana from licensed stores, providing they have a letter from their doctor recommending its uses. In a number of these states, the price of medical marijuana is observed to be higher than that of the pot sold illegally just down the street. Use the reasoning in this chapter to explain:

(a) why people would be willing to pay a higher price for the medical marijuana, and

(b) why it might be misleading to compare the observed price of the medical variety with the observed price of the illegal weed.

3. (0, 5, or 10) According to the Surgeon General of the United States, nicotine is the most addictive drug known to humanity, and cigarette smoking kills perhaps 300,000 – 400,000 people per year in the United States. Why then isn’t tobacco illegal in America?

4. (0, 5, or 10) During Prohibition, some speakeasy operators paid bribes to ensure that the police did not raid their establishment while other operators would not.

a) Would you expect the quality of liquor served in such speakeasies to be higher or lower than the liquor served in the establishments that did not pay bribes?

b) Would you expect to find differences (e.g., income levels) between the customers patronizing the two types of speakeasies?

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Chapter 2 Crime and Drugs 1 Chapter 2: Crime and Drugs Crime •Any action that is forbidden by law and carries criminal penalties •Violent crimes: murder, rape, robbery, and assault •Offenses against property: arson and theft •Other crimes: gambling, prostitution, possession of and trafficking in drugs, and sales of pornography •Violent crime rates have fallen since 1990 Table 2-1: Violent crime rates in United States (number of crimes per 100,000 inhabitants), selected years 1990–2011 aViolent crime includes murder and nonnegligent manslaughter, forcible rape, robbery, and aggravated assault; and by definition it involves force or threat of force Crime Prevention •Crime prevention is an example of a public good •Public goods and services • Characteristics • Indivisible • Nonrivalrous • Nonexcludable • Subject to the free-rider problem • Often provided by the government • Examples: national defense, street lights, roads, crime prevention Crime Prevention Consider a Can of Coca-Cola (a private good) vs. National Defense (a public good) • Indivisible • Impossible to divide national defense into units sufficiently small to be sold in private markets • Nonrivalrous • National defense use by one person does not prevent use by others • Nonexcludable • Benefits of national defense cannot be kept from persons who do not pay for the goods’ provision in a private market Crime Prevention •Free-rider problem • Individuals that do not pay their share for a good or service nevertheless enjoy its benefits •Private market • Is not efficient in providing public goods (if you cannot make people pay for it) •Government • Usually provides public goods and services • Finances them with tax revenues Crime Prevention •Cost-benefit analysis • Should be done for all projects requiring public spending • A study that compares the costs and benefits of a policy or program • The activity is justified only if the benefits are greater than the costs • If two policies both have greater benefits to society than their costs, the one with the larger net benefit should generally be adopted Crime Prevention •Costs of anticrime activity • Costs of equipment • Squad cars and prison cells • Salaries and fringe benefits of police, court, and corrections personnel • Costs of administering the system • From 1982 to 2006, spending on police protection increased 420%, spending on the judicial system increased 503%, and spending on correction facilities (mostly paid for by states) increased 660% • Opportunity cost – production possibilities frontier Production possibilities curve for crime prevention Resources used for crime prevention are not available for other uses. Over time, the United States has moved from a point such as A to a point such as B on the curve. Crime Prevention •Benefits of crime prevention activities • Value of property damage that is prevented • Medical expenses, psychological trauma, loss of income, and other expenses that are not incurred when criminal assaults are prevented • Feeling of “being safe”. •Net benefits • The excess of benefits over costs • Can be positive or negative Incarceration rates (number of incarcerated people per 100,000 inhabitants), 20 selected countries Crime Prevention •Increased costs of our prison system •Higher levels of incarceration, longer prison sentences • Supposed to reduce crime: • Deter would-be offenders from committing crimes because of the increased likelihood of a prison sentence • Physically prevent convicts from committing new crimes while they are in prison Empirical Studies of the Trend Toward Higher Incarceration Rates •Imprisonment policy discussions are usually couched in terms of: • Decreasing violent crimes against persons, and • Prison overcrowding and the nature of the prison population Decreasing Violent Crimes Against Persons • Studies with age-adjusted data find few benefits and great costs associated with higher incarceration rates • Studies without age adjustments find that the benefits of increased incarceration greatly exceed the costs • Thus, conflicting research methods lead to uncertain conclusions Prison Overcrowding Despite falling crime rates in 1990s to the present, the prison population soared due to: 1. Establishment of mandatory minimum sentences for drug violations and other offenses (less discretion) • More than half (55 percent) of federal prisoners are drug offenders 2. Truth in Sentencing provision in a 1994 federal crime bill (tied to federal funding) affecting sentencing and paroles 3. Adoption by federal government and half the states of “three strikes and you’re out” laws • Require sentences of life for third conviction of certain crimes (one stole video cassettes and another stole golf clubs) • The “third” strike of more than half of the prisoners is for a non-violent offense such as drug possession The Death Penalty CORE QUESTION Should the Death Penalty Be Allowed? Moral & Ethical Issues Is the Death Penalty Immoral? Should Physicians Participate in Executions? What Is the Hippocratic Oath? Legal Considerations Is the Death Penalty Unconstitutional? Has DNA Testing Led to Significant Improvements in the Criminal Justice System? Is Poor Representation by Public Defense Attorneys a Widespread Problem in Capital Cases? Is Prosecutorial Misconduct a Widespread Problem in Capital Cases? Deterrence & Retribution Does the Death Penalty Deter Crime? Should Executions Be Made Public? Should the Death Penalty Be Used for Retribution? Social Issues Does a Person's Race Affect the Likelihood of Him/Her Receiving the Death Penalty? Does a Person's Income Level Affect the Likelihood of Him/Her Receiving the Death Penalty? Should a Death Penalty Moratorium Be Implemented? Should Victims' Opinions Matter When Considering the Death Penalty? Death Penalty vs. Life in Prison Is Life in Prison without Parole a Better Option Than the Death Penalty? Does the Death Penalty Cost Less Than Life in Prison without Parole? Cost-Benefit Analysis of the Death Penalty • Emotional issue • Politicians not supporting the death penalty can be seen as “soft on crime” • Death penalty benefits • Possible deterrent of capital crimes • Death penalty costs • More expensive than a sentence of life in prison • Trials for death penalty • Tend to take longer • Typically require more lawyers and more costly expert witnesses • Are far more likely to lead to multiple appeals 17 Cost-Benefit Analysis of the Death Penalty • Death penalty costs • In CA, the death penalty costs $114 million per year beyond the cost of lifetime imprisonment • In KS, capital case costs are 70% more expensive than comparable non-capital cases • In NC, the death penalty costs $2.26 million more per execution than the lifetime imprisonment of convicted murderers • In TX, a single death penalty case costs an average of $2.3 million, which is about three times the cost of imprisoning someone in a single cell at the highest security level for 40 years • In FL, the death penalty costs $51 million per year above what it would cost to punish all first degree murderers with life in prison without parole • All the studies conclude that in terms of cost-benefit analysis, the costs of the death penalty far exceed any benefits. 18 Police Chiefs’ Views Accurate Inaccurate Politicians support the death penalty as a symbolic way to show they are tough on crime 69% 24% Death penalty cases are hard to close and take up a lot of police time. 61% 32% Debates about the death penalty distract Congress and state legislatures from focusing on real solutions to crime problems. 50% 42% The death penalty significantly reduces the number of homicides 37% 48% The death penalty is one of the most important law enforcement tools 31% 46% Murderers think about the range of possible punishments before committing homicides 24% 69% Smart on Crime: Reconsidering the Death Penalty in a Time of Economic Crisis National Poll of Police Chiefs Puts Capital Punishment at Bottom of Law Enforcement Priorities A Report from the Death Penalty Information Center (Washington, DC, October 2009) Government Options • • • • • Tobacco Alcohol Drugs Prostitution Gambling Regulate Illegal Tax Legal vs. Illegal • During Prohibition, the death rate from acute alcohol poisoning was more than 30 times higher than it is today. • In 1927 (alcohol illegal), 12,000 people died from acute alcohol poisoning, and many thousands more were blinded or killed by contaminated booze. • When a substance is made illegal, there is an incentive for users to switch to a less often but more intensive use (alcohol and drugs). • In Nevada, VD in registered prostitutes is almost nonexistent, and no prostitute has tested positive for AIDS. • In Newark, NJ, 52% of prostitutes tested were infected with the AIDs virus. (believed to be the same in NY and Washington, DC) • What about drugs? • In 2017, 70,237 drug overdose deaths occurred in the U.S. Opioids, mainly synthetic opioids (other than methadone) are currently the main driver of drug overdose deaths. Assume for the time being: •No negative consequences to innocent third parties •People know what they are doing (they’re rational) •“Victimless” crimes •So, why are they considered illegal? Arguments for Making a Good Illegal 1. People have limited information about the good, are not capable of making a good decision about the good, or the good is addictive and one-time users can not learn from their mistake. Elasticity implication? 2. There are externalities, effects of a transaction that hurt or help people who are not a part of that transaction, involved in the production or consumption of the good. • E.g., families of someone addicted to drugs, alcohol, or gambling • Or crimes committed by someone addicted to drugs 3. The good is immoral. Sin taxes Preventing Bad Decisions • Economists are typically reluctant to assume that people can not make good decisions (not consistent with the assumption that people are rational). • Drugs tend to be an exception to this rule because they are addictive (e.g., cocaine). • Ads may appeal to children • Whaaassuupp • Joe Camel • NASCAR Winston Cup, Busch Series • Virginia Slims Tennis Preventing Bad Decisions • Vast majority of smokers begin smoking well before becoming adults, so . . . • Preventing a child from having access to cigarettes is in society’s interest and in the child’s long-term interest • What about • Alcohol? • Gambling? • Drugs? Should Drugs Be Legalized/Decriminalized? • Substance Abuse and Mental Health Services Administration of the U.S. Department of Health and Human Services • Regularly conducts a national survey on drug abuse • 46% of population - admits to using some illicit drug during their lifetime • Marijuana or hashish • Prescription drugs Should Drugs Be Legalized/Decriminalized? United States admissions aged 12 years and older, by primary substance use: 2017 Total (Number) Alcohol Only Alcohol with secondary drug Heroin Other opiates Cocaine (smoked) Cocaine (other route) Marijuana Amphetamines Other stimulants Tranquilizers Sedatives Hallucinogens PCP Inhalants Other/Unknown Total (All Substances) 323,790 248,200 507,708 146,070 59,333 40,585 237,164 198,014 2,027 19,641 3,204 2,183 5,148 888 126,584 1,920,539 Percent 16.86% 12.92% 26.44% 7.61% 3.09% 2.11% 12.35% 10.31% 0.11% 1.02% 0.17% 0.11% 0.27% 0.05% 6.59% 100.00% Data Source: National Survey of Substance Abuse Treatment Services 27 Should Drugs Be Legalized/Decriminalized? •Background on the legal status of drugs, U.S. • 1914, opiates illegal • 1937, marijuana illegal • 1920 – 1933, alcohol prohibited • Currently: alcohol and tobacco are legal but cannot be sold legally to minors •Many European countries • Much more relaxed drug laws and policy Should Drugs Be Legalized/Decriminalized? 29 The War on Drugs: U.S. Antidrug Policy •Decrease the supply of drugs (up to 95% of effort) • Efforts to prevent drugs from entering U.S. • Increased severity of punishment for selling drugs • Involve the U.S. military The War on Drugs: U.S. Antidrug Policy •Decrease the demand for drugs (about 5% of effort) • Drug awareness & education programs for youth • Increased penalties for possession of illegal drugs • Prisons - drug treatment programs for offenders • Zero tolerance of drug use The War on Drugs: U.S. Antidrug Policy •Argument against drug legalization • Adverse personal health consequences of drugs • Expected increase in drug-related social problems if drugs were to be legalized • Success of the war on drugs The War on Drugs: U.S. Antidrug Policy •Argument in favor of drug legalization • Efforts to restrict the supply of drugs have largely failed • Link between illegal drugs and crime • Drugs may contribute to corruption • Drug law enforcement may be discriminatory • Drug enforcement may violate our constitutional rights • Financial & opportunity costs of drug enforcement • Health consequences of our drug policies The War on Drugs: U.S. Antidrug Policy •Benefits of the legalization/decriminalization of drugs • Tax dollars for the government • Drugs would be safer • Organized crime might exit the drug industry • Less criminal activity • Resources saved: education & treatment programs Centers for Disease Control and Prevention • It’s legal in many states, so doesn’t that mean marijuana is safe? • The fact that it’s legal does not mean that it is safe. Using marijuana especially at an early age can lead to negative health consequences. • Heavy marijuana use (daily or near-daily) can do damage to memory, learning, and attention, which can last a week or more after the last time someone used. • Using marijuana during pregnancy or while breastfeeding may harm the baby, just like alcohol or tobacco. • Marijuana use has been linked to anxiety, depression, and schizophrenia, but scientists don’t yet know whether it directly causes these diseases. • Smoking any product, including marijuana, can damage your lungs and cardiovascular system. 35 Where are we today? Marijuana is legal in 11 states for adults over the age of 21, and legal for medical use in 33 states. Economics of Prohibition or Legalization •Effect of legalization on demand for drugs • Increase in demand • Higher price • Higher quantity •Effect of legalization on supply for drugs • Increase in supply • Lower price • Higher quantity • How much the use of the drugs would increase depends on elasticity of demand Figure 2-3: Effect of legalization of drugs on the demand for drugs Legalization would increase demand from D to D’, which would increase price to P’ and quantity to Q’ Effect of legalization of drugs on the supply for drugs Price S1 S2 Demand 0 Quantity Legalization would increase supply from S1 to S2, decreasing the price and increasing the quantity supplied. 39 Chapter 2 Appendix: Elasticity •Elasticity of demand • Responsiveness of consumers buying decisions to changes in the price of the product •Elastic demand • Buyers – more responsive to changes in price •Inelastic demand • Buyers – less responsive to changes in price Elasticity • Elasticity coefficient Elasticity If demand is elastic Elasticity coefficient > 1 (absolute value) Any percentage change in price causes a larger percentage change in quantity demanded If demand is inelastic •Elasticity coefficient < 1 (absolute value) •Any percentage change in price causes a smaller percentage change in quantity demanded Elasticity •Demand curves •The flatter (closer to horizontal) curve will be more elastic •The steeper (closer to vertical) curve will be more inelastic Figure 2-7: Two demand curves of varying elasticity D1 is less elastic than demand curve D2 at prices near their $4 intersection Figure 2-4: Effects of the legalization of drugs on the supply of drugs Legalization of drugs would increase supply from S to S’. which would decrease price to P’ and increase quantity to Q’. The size of the effect on price and quantity depends on the elasticity of demand which is why it is important to have some knowledge of the elasticity of demand. Elasticity •Excise tax – supply decrease •Less physically addicting drug • Elastic demand • Greater decrease in quantity • Smaller increase in price • Greater burden of the tax falls upon the supplier • Lower profits Elasticity •Excise tax – supply decrease •More physically addicting drug • Inelastic demand • Little decrease in quantity • Bigger increase in price - by almost the full amount of the tax • Greater burden of the tax falls upon the consumer • Higher price of the drug Figure 2-8: Two demand curves of varying elasticity with the imposition of an excise tax Economics of Prohibition or Legalization •Regulation through economic policies • Government’s expenditures on drug-related programs • Demand-side treatment & education programs • A system of excise taxes levied on legal drugs • Decrease the supply of the drug • Regulated and kept out of the hands of minors • Drivers under the influence of any drug could be arrested • What is the elasticity of demand for drugs in the U.S.? • We don’t know Tax Revenues from Pot Sales are not a sure bet • NJ estimated that legal sales of marijuana would reap between $80 and $120 million annually • Pa lawmakers estimated that legal sales of marijuana would reap $580 million in additional tax revenues • A recent study by the Pew Charitable Trusts suggests that these projections might be the stuff of champagne dreams and caviar wishes • Reasons: • Overly aggressive taxes keep the black markets alive • Positive outcomes: • Taxes exceed the costs of administrating the programs • Hundreds of millions saved in criminal justice system 50 Safehouse: a Proposed Philadelphia Safe Injection Site • Opioid overdoses continue to rise around the U.S. • Safe injection sites • Provide addicts with a place where they can use drugs under the supervision of a trained medical staff that have naloxone available and provide clean needles and other supplies • Users bring their own drugs • Site staff provides counseling about accessing treatment, legal help, housing and other social services 51 Safehouse: a Proposed Philadelphia Safe Injection Site • Supervised injection sites operate in Canada, Europe, and Australia • Safehouse is the first one proposed in the United States • Located in a Kensington area known for its drug use • Supported by local government(?), but opposed by federal government • Health officials in cities (Seattle, New York, and Denver) and states (Massachusetts, Vermont, and New Jersey) have discussed similar injection site proposals • Another NIMBY issue 52 Conservative versus Liberal Economic conservatives Economic liberals • Less government involvement • Greater government in economic realms intervention in the marketplace • Support the legalization of drugs and other victimless • Favor the criminalization and crimes prohibition of drug use and other so-called victimless • Excise taxes crimes • Note: Social conservatives • Note: social liberals are more would not support such likely to support legalization legalization of drugs Websites discussing drug legalization/decriminalization • http://www.heritage.org • http://www.cato.org • http://www.leap.cc/ Law Enforcement Action Partnership (LEAP) 55 Chapter 2: Crime and Drugs The Table below shows violent crime rates in United States (number of crimes per 100,000 inhabitants) for selected years from 1990 to 2011. a Violent crime includes murder and nonnegligent manslaughter, forcible rape, robbery, and aggravated assault; and by definition it involves force or threat of force Crime Prevention Crime prevention is an example of a public good. Public goods and services have the following characteristics. They are: indivisible, nonrivalrous, and nonexcludable. You cannot prevent someone from consuming a public good or service even if that person does not pay for the good or service. As a result they are subject to the “free-rider problem.” As a result, they are usually provided by the government. Examples include national defense, street lights, roads, and crime prevention. Consider a Can of Coca-Cola vs. National Defense Indivisible: Impossible to divide national defense into units sufficiently small to be sold in private markets as is done with Coca-Cola Nonrivalrous: National defense use by one person does not prevent use by others. If you buy a can of Coca-Cola, that can is yours. Others can also buy other cans of Coca-Cola, but not the one you purchased. Nonexcludable Benefits of national defense cannot be kept from persons who do not pay for the goods’ provision in a private market. Unless you share your can of Coca-Cola, no one else benefits from it except you. Free-rider problem Individuals that do not pay their share for a good or service nevertheless enjoy its benefits The private market is not efficient in providing public goods, so the government usually provides public goods and services and finances them with tax revenues Cost-benefit analysis: Should be done for all projects requiring public spending. A cost-benefit analysis is a study that compares the costs and benefits of a policy or program. The activity is justified only if the benefits are greater than the costs. If two policies both have greater benefits to society than their costs, the one with the larger net benefits should generally be adopted. Costs of anticrime activity Costs of equipment (e.g., police vehicles and prison cells Salaries and fringe benefits of police, court, and corrections personnel Costs of administering the system From 1982 to 2006, spending on police protection has increased 420%, spending on the judicial system increased 503%, and spending on correction facilities has increased 660% Benefits of crime prevention activities Value of property damage that is prevented Medical expenses, psychological trauma, loss of income, and other expenses that are not incurred when criminal assaults are prevented Feeling of “being safe”. Net benefits The excess of benefits over costs which can be positive or negative. The Table below shows incarceration rates (number of incarcerated people per 100,000 inhabitants) for 20 selected countries Increased costs of our prison system Higher levels of incarceration and longer prison sentences were supposed to reduce crime by deterring would-be offenders from committing crimes because of the increased likelihood of a prison sentence while physically preventing convicts from committing new crimes while they are in prison Empirical Studies of the Trend Toward Higher Incarceration Rates Imprisonment policy discussions are usually couched in terms of decreasing violent crimes against persons, and prison overcrowding and the nature of the prison population Decreasing Violent Crimes Against Persons Studies with age-adjusted data find few benefits and great costs associated with higher incarceration rates, while studies without age adjustments find that the benefits of increased incarceration greatly exceed the costs. Thus, conflicting research methods lead to uncertain conclusions Prison Overcrowding Despite falling crime rates in 1990s to the present, the prison population soared due to: 1. Establishment of mandatory minimum sentences for drug violations and other offenses (less discretion) • More than half (55 percent) of federal prisoners are drug offenders 2. Truth in Sentencing provision in a 1994 federal crime bill (tied to federal funding) affecting sentencing and paroles 3. Adoption by federal government and half the states of “three strikes and you’re out” laws • Require sentences of life for third conviction of certain crimes (one stole video cassettes and another stole golf clubs) Cost-Benefit Analysis of the Death Penalty It is an emotional issue. Politicians not supporting the death penalty can be seen as “soft on crime” Death penalty benefits: Possible deterrent of capital crimes Death penalty costs: More expensive than a sentence of life in prison Trials for death penalty Tend to take longer and typically require more lawyers and more costly expert witnesses Are far more likely to lead to multiple appeals Examples of death penalty costs: In CA, the death penalty costs $114 million per year beyond the cost of lifetime imprisonment In KS, capital case costs are 70% more expensive than comparable non-capital cases In NC, the death penalty costs $2.26 million more per execution than the lifetime imprisonment of convicted murderers In TX, a single death penalty case costs an average of $2.3 million, which is about three times the cost of imprisoning someone in a single cell at the highest security level for 40 years In FL, the death penalty costs $51 million per year above what it would cost to punish all first degree murderers with life in prison without parole All the studies conclude that, in terms of cost-benefit analysis, the costs of the death penalty far exceed any benefits. CORE QUESTION Should the Death Penalty Be Allowed? Moral & Ethical Issues Is the Death Penalty Immoral? Should Physicians Participate in Executions? What Is the Hippocratic Oath? Legal Considerations Is the Death Penalty Unconstitutional? Has DNA Testing Led to Significant Improvements in the Criminal Justice System? Is Poor Representation by Public Defense Attorneys a Widespread Problem in Capital Cases? Is Prosecutorial Misconduct a Widespread Problem in Capital Cases? Deterrence & Retribution Does the Death Penalty Deter Crime? Should Executions Be Made Public? Should the Death Penalty Be Used for Retribution? Social Issues Does a Person's Race Affect the Likelihood of Him/Her Receiving the Death Penalty? Does a Person's Income Level Affect the Likelihood of Him/Her Receiving the Death Penalty? Should a Death Penalty Moratorium Be Implemented? Should Victims' Opinions Matter When Considering the Death Penalty? Death Penalty vs. Life in Prison Is Life in Prison without Parole a Better Option Than the Death Penalty? Does the Death Penalty Cost Less Than Life in Prison without Parole? So Called “Victimless Crimes” • • • • • Tobacco Alcohol Drugs Prostitution Gambling Regulate Illegal Tax Government Options: regulate them, legalize them, and / or tax them Legal vs. Illegal During Prohibition, the death rate from acute alcohol poisoning was more than 30 times higher than it is today. In 1927 (alcohol illegal), 12,000 people died from acute alcohol poisoning, and many thousands more were blinded or killed by contaminated booze. When a substance is made illegal, there is an incentive for users to switch to a less often but more intensive use (alcohol and drugs). In Nevada, VD in registered prostitutes is almost non-existent, and no prostitute has tested positive for AIDS. In Newark, NJ, 52% of prostitutes tested were infected with the AIDs virus. (believed to be the same in NY and Washington, DC) What about drugs? Drug overdoses kill about 48,000 people a year in the U.S. (19,000 attributed to prescription painkillers, and another 11,000 tied to heroin). Assume for the time being: No negative consequences to innocent third parties, and people know what they are doing, that is, they’re rational. If these are “victimless” crimes, why are they considered illegal? Arguments for Making a Good Illegal (the time being is over) 1. People have limited information about the good, are not capable of making a good decision about the good, or the good is addictive and one-time users cannot learn from their mistake. Elasticity implication? 2. There are externalities, effects of a transaction that hurt or help people who are not a part of that transaction, or involved in the production or consumption of the good. 3. The good is immoral. Sin taxes Preventing Bad Decisions 1. Economists are typically reluctant to assume that people cannot make good decisions (not consistent with the assumption that people are rational). 2. Drugs tend to be an exception to this rule because they are addictive (e.g., cocaine). 3. Ads may appeal to children Whaaassuupp Joe Camel NASCAR Winston Cup, Busch Series Virginia Slims Tennis Vast majority of smokers begin smoking well before becoming adults, so . . . preventing a child from having access to cigarettes is in society’s interest and in the child’s long-term interest. What about Alcohol? Gambling? Drugs? Should Drugs Be Legalized? Substance Abuse and Mental Health Services Administration of the U.S. Department of Health and Human Services regularly conducts a national survey on drug abuse. Forty six percent of population admits to using some illicit drug during their lifetime, primarily marijuana and prescription drugs. Background on the legal status of drugs, U.S. 1914, opiates illegal 1937, marijuana illegal 1920 – 1933, alcohol prohibited Currently: alcohol and tobacco are legal but cannot be sold legally to minors Many European countries have much more relaxed drug laws and policy The War on Drugs: U.S. Antidrug Policy Decrease the supply of drugs (up to 95% of effort) Efforts to prevent drugs from entering U.S. Increased severity of punishment for selling drugs Involve the U.S. military Decrease the demand for drugs (roughly 5% of the effort) Drug awareness & education programs for youth Increased penalties for possession of illegal drugs Prisons - drug treatment programs for offenders Zero tolerance of drug use Argument against drug legalization Adverse personal health consequences of drugs Expected increase in drug-related social problems if drugs were to be legalized Success of the war on drugs Argument in favor of drug legalization Efforts to restrict the supply of drugs have largely failed Link between illegal drugs and crime Drugs may contribute to corruption Drug law enforcement may be discriminatory Drug enforcement may violate our constitutional rights Financial & opportunity costs of drug enforcement Health consequences of our drug policies Benefits of the legalization of drugs Tax dollars for the government Drugs would be safer Organized crime might exit the drug industry Less criminal activity Resources saved: education & treatment programs Where are we today? As of January, 2019, recreational marijuana is legal in nine states and medical marijuana is legal in 30 states. Economics of Prohibition or Legalization Effect of legalization on demand for drugs Increase in the demand for drugs resulting in Higher price Higher quantity Effect of legalization on supply for drugs Increase in supply of drugs resulting in Lower price Higher quantity How much the use of the drugs would increase depends on elasticity of demand Chapter 2 Appendix: Elasticity Elasticity of demand is defined as the responsiveness of consumers buying decisions to changes in the price of the product The elasticity coefficient is equal to the percentage change in the quantity demanded divide by the percentage change in the price. Demand is elastic if the elasticity coefficient > 1 (absolute value). Any percentage change in price causes a larger percentage change in quantity demanded Demand is inelastic if the elasticity coefficient < 1 (absolute value). Any percentage change in price causes a smaller percentage change in quantity demanded D1 is less elastic than demand curve D2 at prices near their $4 intersection The flatter (closer to horizontal) demand curve (D2) will be more elastic The steeper (closer to vertical) demand curve (D1) will be more inelastic Effect of an excise tax on suppliers Imposing an excise tax on suppliers increases the cost of supplying the product shifting the supply curve to the left. For a less physically addicting drug (e.g. marijuana), the demand will be more elastic than for a more physically addicting drug (e.g. heroin), resulting in a greater decrease in quantity and a smaller increase in price than would occur for the more physically addicting drug. For a less physically addicting drug (more elastic), a greater burden of the tax falls upon the supplier lowering profits. For a less physically addicting drug (less elastic), a greater burden of the tax falls upon the buyer of the product. Economics of Prohibition or Legalization The regulation of legalized drugs through economic policies would be somewhat similar to the regulations related to alcohol including: Government’s expenditures on drug-related programs Demand-side treatment & education programs A system of excise taxes levied on legal drugs Decreasing the supply of the drug Prohibitions against buying by or selling to minors Drivers under the influence of any drug could be arrested What is the elasticity of demand for drugs in the U.S.? We don’t know. The Figure below shows two demand curves of varying elasticity with the imposition of an excise tax Conservative versus Liberal Economic conservatives Less government involvement in economic realms Support the legalization of drugs and other victimless crimes, and the use of excise taxes Note: Social conservatives would not support such legalization Economic liberals Greater government intervention in the marketplace Favor the criminalization and prohibition of drug use and other so-called victimless crimes. Note: social liberals are more likely to support legalization of drugs. Websites discussing drug legalization/decriminalization http://www.heritage.org http://www.cato.org http://www.leap.cc/
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1
Crime and Drugs
1. Elasticity of demand for presently illegal drugs is very important in the debate about the
illegalization of drugs. When drugs are legalized, the demand would depend on how the
consumers respond to the price of the products. When drugs are legalized, the demand would
increase, the price would increase while the supply may reduce because of regulation laws.
2. a) When Marijuana...


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