Wednesday, March 4, 2009
Assume that the price elasticity of demand for marijuana is -1.20 and the price elasticity of demand for cocaine is -0.40. Assume further that marijuana and cocaine users get the funds to pay for their habit by resorting to petty larceny. Suppose the government increases enforcement against drug suppliers such that the prices of both illegal goods rise by 20%. What will happen to the price of each drug? What will happen to the amount of petty larceny committed by marijuana and cocaine users? Explain precisely.