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The Market for Illegal Drugs • When drug prices are low, law enforcement gets blamed. Demand Shift or Supply Shift? P P S S S’ Po Po P1 P1 D Qo Q1 D Q1 Qo Q Q Lectures in Microeconomics-Charles W. Upton Demand Shift or Supply Shift The Market for Illegal Drugs Supply and Demand • When drug prices are low, law enforcement gets blamed. • Lax enforcement means that supply increases, meaning lower prices. • When drug prices are low, law enforcement gets blamed. • Lax enforcement means that supply increases, meaning lower prices. Demand Shift or Supply Shift P Demand Shift or Supply Shift S Po D Qo Demand Shift or Supply Shift The Consequence of Lax Enforcement • When drug prices are low, law enforcement gets Po blamed. P1 • Lax enforcement means that supply increases, meaning lower prices. P The Supply Shift S S’ D Qo Q1 Q Q • When drug prices Lower criminal are low, law penalties meangets a enforcement Po lower cost of blamed. P1 business, • doing Lax enforcement hence greater means that supply supply meaning increases, lower prices. P Demand Shift or Supply Shift S S’ D Qo Q1 Q 1 Lower Prices • When drug prices Thatlow, means are lawa lower price. gets P enforcement o blamed. P1 • Lax enforcement means that supply increases, meaning lower prices. Greater Quantity P S S’ D Demand Shift or Supply Shift Qo Q1 Q The Market for Illegal Drugs •Once Whenagain, drug prices the arepolice low, law are enforcement gets Po spending too blamed. much time eating P 1 • Laxdonuts! enforcement means that supply increases, meaning lower prices. P Demand Shift or Supply Shift Demand Shift or Supply Shift P S S’ D Demand Shift or Supply Shift Qo Q1 Q Not So Fast S S’ • An economist would object to this rapid conclusion. D Qo Q1 An Alternative Explanation • An economist would object to this rapid conclusion. • The decline in prices could also be due to a demand shift. • When drug prices Not mention aretolow, law a higher quantity.gets P enforcement o blamed. P1 • Lax enforcement means that supply increases, meaning lower prices. Q Demand Shift or Supply Shift The Market for Illegal Drugs • An economist would object to this rapid Po conclusion. • The decline in prices could also be due to a demand shift. P Demand Shift or Supply Shift S D Qo Q 2 The Market for Illegal Drugs • An economist would object to this rapid Po conclusion. P1 • The decline in prices could also be due to a demand shift. P The Market for Illegal Drugs S • An economist would object to Drug this rapid Po Education conclusion. P1 causes the curve in • demand The decline to shift could to the also prices leftto a be due demand shift. D Q1 Demand Shift or Supply Shift Qo Q P • An economist would object to And Quantity thisFalls rapid Po conclusion. P1 • The decline in prices could also be due to a demand shift. D Q1 Qo Q P S P S Po Po P1 P1 Qo Q1 Q Demand Shift or Supply Shift Demand is Down Q S D Q1 Qo Q Q S S’ Po P1 D D Q1 Qo P P S P1 D Qo Two Explanations S’ Po Q1 Demand Shift or Supply Shift Two Explanations P D The Market for Illegal Drugs S Demand Shift or Supply Shift S Demand Shift or Supply Shift The Market for Illegal Drugs • An economist would object to Prices this rapid Decline Po conclusion. P1 • The decline in prices could also be due to a demand shift. P Qo Q1 Q Demand Shift or Supply Shift D Q1 Qo Q 3 Two Explanations P P S S’ Po Po P1 P1 If the Supply Story is Right Supply is Up Q1 Po Q P1 Q1 Qo P S Price down, Quantity Down Po P1 Qo Q Qo Q1 S’ Po P1 D Q Demand Shift or Supply Shift Q1 Qo g Price Cause Down Down Demand Down Down Up Up Up Down Up Q Demand Shift or Supply Shift Q1 Qo g Quantity g Price Cause Down Down Demand Down Down Up Supply Down Up Up Down Up Supply Up Demand Up Q S D What is Going On g Quantity g Price Cause Down Down Demand Down Supply Down Down Up Supply Down Supply Up Demand Up Up Up Down Up Supply Up Demand Up S Demand Shift or Supply Shift Q Demand Shift or Supply Shift What is Going On g Quantity Q1 D What is Going On S D Price down, Quantity Up D If the Demand Story is Right P S Po P1 D Demand Shift or Supply Shift P S S’ D Qo P S D S D Demand Shift or Supply Shift 4 What is Going On g Quantity g Price Cause Down Down Demand Down Down Up Up Up Down Up What is Going On g Quantity g Price Cause Down Down Demand Down Supply Down Down Up Supply Down Supply Up Demand Up Up Up Down Up Supply Up Demand Up S D Demand Shift or Supply Shift S D Demand Shift or Supply Shift The Moral of The Story g Quantity g Price Cause Down Down Demand Down Up Up Demand Up Adding Up Demand Curves -A Bonus Life is supply and demand, but Down Up Supply Down don’t think about one without Up Downthe other. Supply Up thinking about Demand Shift or Supply Shift Demand Shift or Supply Shift Adding up demand functions Adding up demand functions P P • Suppose we have the demand functions for North Po Dakota and South Dakota. • To get the combined demand functions, add them up horizontally. • Suppose we have the demand Po functions for North Dakota and South Dakota. DND Demand Shift or Supply Shift DSD Q Demand Shift or Supply Shift DND DSD D Q 5 Adding up demand functions P • Suppose we have the demand functions for North Po Dakota and South Dakota. • To get the combined demand functions, add them up horizontally. End DND Q ND Q SD o o Shift Demand Shift or Supply DSD Qo D Q ©2004 Charles W. Upton Demand Shift or Supply Shift 6
