Using the supply-demand framework, answer the following question: what should be the effect on the equilibrium...
Using the supply-demand framework, answer the following question: what should be the effect on the equilibrium price and quantity of marijuana once its sale and consumption became legalized?
Homework Answers
Currently the sale of marijuana is illegal so its supply is highly inelastic as it is sold only through smuggling. This implies that currently its price is higher and quantity is lower at the equilibrium.
When its sale is legalized, it will be supplied by many sellers so supply will increase. Shift in the supply curve to the right will reduce its equilibrium price and increases its quantity sold (higher consumption). Demand will not change because demand does not depend on whether it is legal or illegal. Consumers of marijuana still consumes by paying a higher price. However, the quantity demanded will rise when price falls.
Thus, once legalized, sale of marijuana is increased. Price falls and consumption rises.
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