Question

You are hired as an economic consultant by a state government that would like to analyse the impact of legalization of marijuana, taking account of different potential market structures. In your answer you should use appropriate models (and diagrams) studied in class. Assume for now that the marijuana market is a single-price monopoly where market demand is linear and downward-sloping and the suppliers' marginal cost is upward sloping 1. The state government is deciding whether to legalize the sale of marijuana products, the use of marijuana products or both. Consider the following scenarios, ceteris paribus, and describe their impact on the firms' costs and profits and the market equilibrium price and quantity. (3 marks) a. Legalizing the sale of marijuana b. Legalizing the consumption of marijuana c. Simultaneously legalizing the sale and the consumption of marijuana.

Answer 1

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