This article has not undergone the review accorded official NBER publications; in particular, it has not been submitted for approval by the board of directors. The most fundamental law of economics links the price of a product to the demand for that product. Accordingly, increases in the monetary price of alcohol i.
Other social science research, such as ethnographic studies, provides much richer descriptions and other insights about how actual illegal drug markets function on a day-to-day basis, and our discussion of the distinctive features of drug markets incorporates insights from this type of research.
Further developing the economic approach to capture more of the features of real-world drug markets across the world is an important on-going research topic. This chapter provides a summary of what is known about major illegal drug markets. It first lays out the basic demand-and-supply analysis framework and explores the strengths and limitations of the basic models, and then considers three distinctive features of illegal drug markets: Page 18 Share Cite Suggested Citation: Understanding the Demand for Illegal Drugs.
The National Academies Press. Efforts to provide economic models of illegal markets go back at least four decades e.
The implicit features of many legal markets in modern economies—for example, quality certification and available legal mechanisms to guard against fraud—are typically absent from illegal drug markets.
Moreover, many key variables are difficult to observe. Illegal drug markets are also characterized by complex features, such as addiction which means responses to increases and decreases in prices may differ and high search costs so that consumers must invest time in finding information about the product that are sometimes found in legal markets but that are difficult to incorporate in simple models.
Despite these limitations, the basic supply-and-demand model provides a specific language to explore causal pathways of proposed public policies.
It provides a framework to interpret available data on observed prices and quantities of illegal substances in particular markets. It focuses attention on basic parameters—the sensitivity of supply and demand to prevailing prices, production technologies, and costs—that are influenced by public policy.
Finally, these simple models provide points of departure for richer theoretical and empirical investigations of particular markets.
Figure presents a very basic model to illustrate the impact of a supply-side law enforcement intervention.
The market demand curve D1 slopes downward: The market demand curve reflects two types of responses to higher prices: As is discussed below, addiction raises the possibility of asymmetry in that lower prices may increase participation; higher prices may not reduce participation in the short run.
The market supply curve S1 slopes upward: The market supply curve again reflects two types of responses to higher prices: A supply-side intervention—such as increased border interdiction or more intensive police actions against street dealers—causes the market supply curve to shift up, or alternatively to the left, to curve S2.
The vertical distance between S1 and S2 may be interpreted as the increase in unit production and distribution costs induced by supply-side interventions. This shift captures the idea that to compensate for the extra risks and Page 19 Share Cite Suggested Citation: Suppose, for example, that police increase arrests of street-level dealers.
How much this raises unit production costs reflects how much drug-selling organizations have to raise wages to compensate dealers for the additional risk, on the assumption that the dealers can estimate that rise. It also reflects how effectively these organizations can shift their production and distribution systems in response to these enforcement shifts.
If sellers can shift sales activities indoors or otherwise avoid the increased enforcement, the shift from S1 to S2 will be small. The standard model assumes that the market price adjusts until an equilibrium is reached at which the quantity demanded equals the quantity supplied.
The original equilibrium in Figure is E1: After the supply-side intervention, a new equilibrium is reached, E2: This new equilibrium reflects an interaction of both supply and demand factors.
The relative slopes of these curves determine the extent that increased production costs are borne by consumers in the form of higher prices.
Even when this model is not explicitly used, this fundamental insight of the supply-and-demand model is commonly recognized. For example, when drug prices have remained constant or have fallen during a period of increased antidrug efforts, many observers conclude that the war on drugs has failed e.
In essence, these observers view the market price of a drug as a sufficient statistic for, or at least a useful indicator of, conditions in the drug market. Although it cannot be interpreted as a performance measure without other indicators, it does have substantial information.
However, the information contained in the market price must be interpreted carefully.
The first insight is illustrated by the difference between Figures and That comparison shows that the magnitudes of the effects of the same supply-side intervention depend on the steepness of the demand curve for drugs. In Figure with a relatively flat demand curve i. However, precisely because drug demand is so responsive to the higher prices caused by the intervention, the price does not have to increase much to restore equilibrium.
In contrast, the sharp increase in price seen in Figure is accompanied by a smaller reduction in the quantity of drugs consumed—the war on drugs did not work that well.
The comparison of Figures and shows that it is important not to confuse the indicator—the market price—with the policy objective reducing drug use. Which figure is a more realistic description of the drug market depends on the price elasticity of demand discussed in more detail below.Executive summary: Smoking is the largest single cause of death and disease in the European Union (EU).
Effective and equitable control of tobacco in the EU by the use of fiscal policies is both significant for addressing the tobacco disease burden and highly complex. Read chapter 2 Markets for Drugs: Despite efforts to reduce drug consumption in the United States over the past 35 years, drugs are just as cheap and avai.
Objectives This paper aimed to estimate the effect of tobacco taxes on total mortality and cause-specific mortality in the 50 States plus the District of Columbia, USA, over the period – as well as the net effect on deaths averted in Price elasticity of demand is a measure of the percentage change in consumption associated with a 1% TABLE I.
change in price . The formula (1) for the average price Median national marijuana price per gram quantities less than elasticity of demand utilized in this analysis is noted below. The most fundamental law of economics links the price of a product to the demand for that product.
Accordingly, increases in the monetary price of alcohol (i.e., through tax increases) would be expected to lower alcohol consumption and its adverse consequences.
BUS final (hard) all the "hard" questions from scribd, chapters STUDY.
B. restricted tobacco advertising. Brie did not know the roles of the key players in the buying center. This could cause her to waste a lot of time and to: A.
bid too many products.