ECONOM IC THEORY OF M ARIJ UANA LEGALIZAT ION
Figure A: The Illegal market for Marijuana
Supply Determinants: the price of the product, the price of inputs and the level of productivity, among other factors. Depending on the nature of the market234, the supply curve may be close to horizontal (highly elastic). Demand Determinants: the price that the buyer is willing to pay for the product along with nonprice factors. Because of the nature of the product, the slope of the demand curve is assumed relatively steep (inelastic). Figure A.
The assumption is that producers can provide just about if not all that is demanded and that cost per unit does not increase with production levels. The flatness (slope) of the supply curve also speaks to the responsiveness (elasticity of supply) of the suppliers to changes in the price of the drug and indicates that small increases in the price will attract new supplies. 234
76