Transcript Chapter 17 - McGraw Hill Higher Education

Chapter 17
Drugs and Prostitution
McGraw-Hill/Irwin
© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.
Chapter Outline
• AN ECONOMIC MODEL OF MARKET
FOR DRUGS AND PROSTITUTION
• ARGUMENTS FOR MAKING A GOOD
ILLEGAL
• DECRIMINALIZING DRUGS AND
PROSTITUTION
McGraw-Hill/Irwin
© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.
Consumer and Producer
Surplus Analysis
P
A
P*
C
B
0
Q*
McGraw-Hill/Irwin
• Value to the Consumer:
Supply
• 0ACQ*
• Consumers Pay Producers:
• OP*CQ*
• The Variable Cost to Producers:
• OBCQ*
• Consumer Surplus:
Demand
• P*AC
Q/t • Producer Surplus:
• BP*C
© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.
The Importance of Elasticity
• If people are addicted to a particular drug,
their demand for it will be inelastic.
• Drug interdiction efforts shift the supply curve
to the left.
• This will cause prices to rise
– Addicts will not reduce quantity demanded much
– Recreational users will reduce quantity demanded
more
McGraw-Hill/Irwin
© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.
Arguments for Making a Good
Illegal
• 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.
• 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.
• The good is immoral.
McGraw-Hill/Irwin
© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.
Preventing Bad Decisions
• Economists are typically reluctant to
assume that people can not make good
decisions.
• Drugs tend to be an exception to this
rule because they are addictive.
McGraw-Hill/Irwin
© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.
Modeling Externalities
Social Cost
External Cost
SMarginal Cost
P
P’
P*
D(Marginal Benefit)
0
McGraw-Hill/Irwin
Q’ Q*
Drugs/Prostitution
© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.
Examining the Externalities
• 30% of all violent crimes (38% for
rapes) are committed while the
perpetrator is on drugs.
• 80% of inmates in jail, detention, or
prison used drugs during the month
leading up to their arrest.
• there are nearly 23,000 drug-related
homicides every year.
McGraw-Hill/Irwin
© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.
Battling Negative Externalities
While Creating Others
• Much of the drug violence that exists,
only exists because of laws
criminalizing drug use.
• If cocaine, methamphetamine, and
marijuana were legal and inexpensive,
– there would be less of a need for addicts to
rob in order to get money to buy them.
– there would be no drive-by shootings to
protect turf.
McGraw-Hill/Irwin
© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.
The Impact of Decriminalizing
Drugs or Prostitution
P
Sillegal
Slegal
Pillegal
Plegal
Dlegal
Dillegal
Qillegal
McGraw-Hill/Irwin
Qlegal
Q
© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.
Substituting Taxation for
Criminalization Social Cost
P
S (Marginal Cost)
}
Tax=External Cost
P’
P*
D (Marginal Benefit)
O
McGraw-Hill/Irwin
Q’ Q*
The Offending Good
© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.