Web Links

• p. 496: Go to http://www.mackinac.org/article.asp?ID=1247 for additional review of the price elasticity of demand.
• p. 500: Go to http://hadm.sph.sc.edu/Courses/Econ/Elast/Elast.html to participate in an Economics Interactive Tutorial at the University of South Carolina that provides further practice with elasticity.

Issues and Applications Web Resources:

• For information about economic issues facing physicians, go to the American Medical Association’s home page http://www.ama-assn.org/.
• To see how the American Psychiatric Association seeks to influence the economic and legal environment its members face, go to http://www.psych.org/.

Price Elasticity and Consumption of Illegal Drugs
Making the use of certain drugs illegal drives up their market prices, so the price elasticity of demand is a key factor affecting the use of illegal drugs. This application applies concepts from this chapter to analyze how price elasticity of demand affects drug consumption.

     Title: The Demand for Illicit Drugs

     Navigation: Go to http://ideas.repec.org/p/nbr/nberwo/5238.html, and follow the link to the summary of this paper published by the National Bureau of Economic Research.

Application
Read the summary of the results of this study of price elasticities of participation in use of illegal drugs, and answer the following questions.

1. Based on the results of the study, is the demand for cocaine more or less price elastic than the demand for heroin? For which drug, therefore, will quantity demanded fall by a greater percentage in response to a proportionate increase in price?

2. The study finds that decriminalizing currently illegal drugs would bring about sizable increases both in overall consumption of heroin and cocaine and in the price elasticity of demand for both drugs. Why do you suppose that the price elasticity of demand would rise? (Hint: At present, users of cocaine and heroin are restricted to only a few illegal sources of the drugs, but if the drugs could legally be produced and sold there would be many more suppliers providing a variety of different types of both drugs.)