Microeconomics – Marijuana

Microeconomics – Marijuana

There is much discussion in the press about several states moving to legalizing marijuana, either for only medical purposes, or more extremely, for recreational purposes. Looking only at the economic impact (not moral implications) of such changes in the laws, discuss how the existing system of supply and demand for illegal marijuana will be changed with the new legalization.

1. What will happen to existing supply avenues?
2. Will legalization significantly change demand? How?
3. Would one expect prices to change significantly? How?
4. What would be the costs and benefits to governments, both in changes in enforcement requirements and in potential tax revenue?

Solution Preview

The legalization of marijuana for medicinal purposes as well as for recreational use will have a substantial economic impact in the country. Such has already been seen in states which have legalized the drug. As it was seen in Colorado, the benefits of the legalization of marijuana led to the collection of $121 million worth of taxes in the year 2015. No evidence was linked to the downsides associated with legalization of the drug, for example, homelessness or increase use of marijuana by the youths.

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