When you finish this chapter, you should: Define the key terms of economics and opportunity cost and understand how a production possibilities frontier exemplifies the trade-offs that exist in life, distinguish between increasing and constant opportunity cost and understand why each might happen in the real world, analyze an argument by thinking economically, while recognizing and avoiding logical traps. | Lecture Issues in economics today - Chapter 17 Chapter 17 Drugs and Prostitution McGraw Hill Irwin 2002 The McGraw Hill Companies Inc. All Rights Reserved. Chapter Outline AN ECONOMIC MODEL OF MARKET FOR DRUGS AND PROSTITUTION ARGUMENTS FOR MAKING A GOOD ILLEGAL DECRIMINALIZING DRUGS AND PROSTITUTION McGraw Hill Irwin 2002 The McGraw Hill Companies Inc. All Rights Reserved. Consumer and Producer Surplus Analysis P Value to the Consumer A Supply 0ACQ Consumers Pay Producers OP CQ P C The Variable Cost to Producers OBCQ B Consumer Surplus Demand P AC 0 Q Q t Producer Surplus BP C McGraw Hill Irwin 2002 The McGraw Hill Companies Inc. All Rights Reserved. The Importance of Elasticity If people are addicted to a particular drug their demand for it will be inelastic. Drug interdiction efforts shift the supply curve to the left. This will cause prices to rise Addicts will not reduce quantity demanded much Recreational users will reduce quantity demanded more McGraw Hill Irwin 2002 The McGraw Hill Companies Inc. All Rights Reserved. Arguments for Making a Good Illegal People have limited information about the good are not capable of making a good decision about the good or the good is addictive and one-time users can not learn from their mistake. There are externalities effects of a transaction that hurt or help people who are not a part of that transaction involved in the production or consumption of the good. The good is immoral. McGraw Hill Irwin 2002 The McGraw Hill Companies Inc. All Rights Reserved. Preventing Bad Decisions Economists are typically reluctant to assume that people can not make good decisions. Drugs tend to be an exception to this rule because they are addictive. McGraw Hill Irwin 2002 The McGraw Hill Companies Inc. All Rights Reserved. Modeling Externalities Social Cost P External Cost SMarginal Cost P P D Marginal Benefit 0 Q Q Drugs Prostitution McGraw Hill Irwin 2002 The McGraw Hill Companies Inc. All Rights Reserved. Examining the Externalities
