The drug war There is a debate in the US and in Europe as to how to influence the market for drugs such as cocaine. Some argue that the answer is to reduce the supply of drugs from Colombia – which would otherwise eventually find their way onto the world markets – by giving aid to the Colombian government to fight the drug suppliers. If this is successful, it will drive up the price of cocaine on the streets. Higher prices mean that fewer people will be willing and able to buy drugs, resulting in a fall in demand. This scenario can be seen in Figure 1.13(a) where a successful anti-drug policy in Colombia would decrease supply, i.e. shift the supply curve for cocaine upwards and to the left so that there is an excess demand for cocaine at price P. This will result in a rise in the equilibrium price of cocaine from P to P1. The quantity demanded will contract along the demand curve D from Q to Q1 as price rises from P to P1. Critics of these ideas argue that programmes designed to reduce the supply of cocaine from Colombia have failed in the past because the high price of drugs makes them very profitable to produce in other areas outside Colombia. Some argue that the answer is to reduce the demand for illegal drugs by various means such as improved education, or by advertising the damaging effects of drugs such as cocaine. This can be seen in Figure 1.13(b) where a successful education policy decreases demand, i.e. shifts the demand curve D downwards and to the left, so that there is an excess supply of cocaine at price P. This will result in a fall in the equilibrium price from P to P1 and in quantity from Q to Q1. Another solution would be to legalise the consumption of cocaine. This would arguably increase supply, i.e. shift the supply curve downwards and to the right as in Figure 1.13(c), substantially reducing the price of cocaine in the streets from P to P1. Proponents of legalisation argue that the very high price of cocaine forces many people into criminal activity to support their habit, so that the lowering of the price of cocaine after legalisation would reduce the pressure on addicts to use criminal activity to buy the drug. However, it is often admitted that in the short run the equilibrium quantity of cocaine in use will rise from Q to Q1 as the price of cocaine falls from P to P1. Others argue that the legalisation of the drug will reduce the ‘thrill’ of engaging in what is currently illegal, anti-establishment activity by taking drugs. If so, this would cause the demand curve D to decrease, shifting downwards and to the left of D. If this did happen the price of cocaine would fall below P1 and the equilibrium quantity of cocaine use might fall below the original level Q if demand decreased sufficiently. Further, if the lower price of cocaine squeezed the profits of suppliers, then they might use their resources elsewhere so that the supply curve decreased, shifting to the left from S1. Although the answer to this policy dilemma for governments is neither easy nor wholly clear, at least supply and demand analysis helps to put the fundamentals of the debate into perspective. Questions 1 Use Figure 1.13(c) to show the extent to which the demand for cocaine must decrease to result in less cocaine being used after legalisation as compared to before legalisation. 2 How might the outcome in question 1 be affected by the now lower price for cocaine squeezing the profits of suppliers, so that supply decreases from the level S1 reached immediately after legalisation? 3 How might the steepness of the demand and supply curves for cocaine be relevant to the outcome of legalisation? 4 What other issues might be raised by a policy of legalisation of cocaine use? 5 A major study from Loughborough University in 2004 argued that, whatever their faults, the Taliban had been effective in their policy of decreasing the supply of poppy growing and therefore of heroin and cocaine in 2001 (over 50% of the world supply of the poppies for these products comes from Afghanistan). Which of the three diagrams in Figure 1.13 best represents how they achieved this policy? How did the researchers know that the world supply of these drugs had fallen so sharply in 2001?
The drug war There is a debate in the US and in Europe as to how to influence the market for drugs such as cocaine. Some argue that the answer is to reduce the supply of drugs from Colombia – which would otherwise eventually find their way onto the world markets – by giving aid to the Colombian government to fight the drug suppliers. If this is successful, it will drive up the price of cocaine on the streets. Higher prices mean that fewer people will be willing and able to buy drugs, resulting in a fall in demand. This scenario can be seen in Figure 1.13(a) where a successful anti-drug policy in Colombia would decrease supply, i.e. shift the supply curve for cocaine upwards and to the left so that there is an excess demand for cocaine at price P. This will result in a rise in the
Some argue that the answer is to reduce the demand for illegal drugs by various means such as improved education, or by advertising the damaging effects of drugs such as cocaine. This can be seen in Figure 1.13(b) where a successful education policy decreases demand, i.e. shifts the demand curve D downwards and to the left, so that there is an
Questions
1 Use Figure 1.13(c) to show the extent to which the demand for cocaine must decrease to result in less cocaine being used after legalisation as compared to before legalisation.
2 How might the outcome in question 1 be affected by the now lower price for cocaine squeezing the profits of suppliers, so that supply decreases from the level S1 reached immediately after legalisation?
3 How might the steepness of the demand and supply curves for cocaine be relevant to the outcome of legalisation?
4 What other issues might be raised by a policy of legalisation of cocaine use?
5 A major study from Loughborough University in 2004 argued that, whatever their faults, the Taliban had been effective in their policy of decreasing the supply of poppy growing and therefore of heroin and cocaine in 2001 (over 50% of the world supply of the poppies for these products comes from Afghanistan). Which of the three diagrams in Figure 1.13 best represents how they achieved this policy? How did the researchers know that the world supply of these drugs had fallen so sharply in 2001?
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