Supply, Demand and Price Elasticity of Demand Assignment | Homework For You
a. Consider the sale or possession of illegal drugs and the effect of drug prohibition laws in terms of supply, demand and price elasticity of demand. Suppose that there is a drug raid in the city where drug enforcement authorities manage to confiscate a substantial amount of cocaine supply. As a result of this, the quantity demanded for cocaine drops from 1,000 grams to 600 grams as the price increases from RM50 per gram to RM120 per gram.
i. Use a graph to illustrate the changes in demand and/or supply resulting from the drug raid.
ii. Compute the price elasticity of demand for cocaine. Is demand elastic or inelastic? How can you explain this?
iii. What can you say is the ‘unintended effect’ of this drug raid by authorities in terms of revenue to the suppliers? What other consequences may it lead to? Get Economics homework help today