Can you help me answer this prompt question?

Question

Prompt #2 - Demand and Supply of Marijuana



Consider government policy regarding marijuana. After being an illegal substance for a long while, many states (including California) relaxed restrictions on the use of the marijuana for medicinal, and eventually for recreational, use.

1. Provide an example of a government policy that would reduce the consumption/quantity of marijuana by reducing the supply of marijuana. What happens to the price of marijuana in this case? Who might benefit from a policy like this?
2. Provide an example of a government policy that would reduce the consumption/quantity of marijuana by reducing the demand of marijuana. What happens to the price of marijuana in this case? Who might benefit from a policy like this?

Answer 1

1. If the government increased regulation towards marijuana production or limited the number of hours a dispensary could be open, there would be a decrease in the supply of marijuana. This would cause a leftward shift in the supply, and an increase in the equilibrium price and quantity in the market for legal marijuana. If you want a graph, just look up a "supply decrease" graph to see one. While that's the answer to the question, if this occurred, the demand for illegal, unregulated black market marijuana would increase since it is harder and more expensive to buy legal marijuana.
2. If the government created a successful advertising campaign showing the health risks associated with marijuana usage (similar to the anti-tobacco campaigns), the demand for marijuana would decrease. This would cause a decrease in the equilibrium price and quantity if the campaign was successful. Look up a graph of "demand decrease" for a picture of this change.

Answer 2

1.) A policy making it illegal to grow, produce, import, consume etc. would reduce supply (almost universally now across the US most of the marijuana sold in states where it is illegal is produced in states where it is legal and 'dumped' in states where it is not). Whenever you reduce supply of anything but demand stays the same, price increases. Those who would benefit most from a federal ban would be the black market, foreign producers, and for profit industrial prison corporations.

2.) A policy that might reduce demand (in places where recreational marijuana is legal you see reduced demand across the board for prescription medications - but that's another apple) remains elusive. Education and prevention programs since the Reagan era have shown to be largely ineffective at moving the needle at a tremendous cost of taxpayer dollars. Mass incarcerations have also completely failed with disastrous results for communities and the largest prison population in the world. The only thing that has consistently shown to reduce demand is treatment programs for heavy users who admit they need help. It's very difficult to treat someone or get them to change their behavior if they don't think they have a problem. If the government was successful in lowering demand in the world's largest consumer of drugs. then a drop in demand with no corresponding drop in supply would lower the price of the good, in this case marijuana. Who might benefit? Consumers of the good who are now paying a lower cost.

Difficult questions that our society is figuring out at the very moment. We've tried a 'war on drugs' for 4 decades with disastrous results and no reduction in usage, in fact its gone up. Clearly it would be insanity to continue to try the same thing expecting different results. Portugal is an interesting case study at the moment the world has been watching. Portugal legalized everything. You can't go buy cocaine at the local supermarket but if your using it you won't go to jail. An interesting result happened. Drug use has declined across the board in Portugal. It's being studied and depending on their moral viewpoint people are drawing different conclusions, but it is definitely something that is being looked at seriously.