Question

(a) Marijuana is an illegal substance in Canada. Suppose in the underground market for Marijuana, the supply curve for Marijuana can be written as ? = 200 + 2? and the demand curve for Marijuana can be written as ? = 500 − 4? where ? is the price of Marijuana and ? is the quantity of Marijuana. C1. (a) Show how to solve for equilibrium quantity ? ? and price ? ? of Marijuana, total expenditure on Marijuana ??? by the addicts, consumer surplus ??? , producer surplus ??? , and total surplus ???

(b) Suppose the government passes a law to grant Marijuana the legal status so that it can be purchased over the counter without prescription in Canada. However, Marijuana is still considered an undesirable product in the society and the government imposes a minimum legal price on Marijuana at $60 above ? ? from part (a). Demonstrate how to compute quantity demanded ?? ′ , quantity supplied ?? ′ , consumer surplus ??′ , producer surplus ??′ , total surplus ??′ , and the deadweight loss ???′

(c) Separate from part (b). Now that Marijuana is legal and the addicts complain it is too expensive at ? ? from part (a) in which many addicts must commit crimes to pay for their addiction. Suppose the government agrees with their view and imposes a maximum legal price on Marijuana at $60 below ? ? from part (a). Demonstrate how to compute quantity demanded ?? ″ , quantity supplied ?? ″ , consumer surplus ??″ , producer surplus ??″ , total surplus ??″ , and the deadweight loss ???″ .

Answer 1