illegal economics final


In this question, you will demonstrate your ability to represent the impact of legalization on illegal markets graphically. Use a new set of graphs for each sub-question. Fully label all axes, lines, and key points of intersection on your graphs.

Dr. Hansen distinguished between laws that allow for marijuana to be bought and sold legally if the consumer has a medical need for it and laws that legalize markets for recreational marijuana consumption. Suppose there are two types of consumers: those with a medical need for marijuana, and those who enjoys occasional marijuana consumption as a form of recreation. Draw two graphs that identify the equilibrium price of marijuana and quantity sold in illegal markets where all consumers are either (1) consuming marijuana for a medical reason or (2) consuming marijuana for recreational purposes. Explain in words any differences or similarities between the two.

Suppose that the government attempted to reduce the social harm associated with marijuana consumption by increasing sentences for people convicted of selling marijuana to consumers. Show how such a policy would impact each of the two markets for marijuana. Using key terms from this class, explain how would the amount of marijuana consumption change in each market?

Rather than increase enforcement, suppose a government decided to legalize the sale and purchase of medical marijuana, keeping the market for recreational marijuana illegal. Based on Dr. Hansen’s discussion of who participates in medical marijuana markets, explain how this policy might change who participates in markets for medical and recreational marijuana, and how this might be represented in your graphs.

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