TAILIEUCHUNG - Lecture Introduction to economics: Social issues and economic thinking: Chapter 15 - Wendy A. Stock

Chapter 15 - The economics of illegal drugs. After completing this unit, you should be able to: Describe the incidence of drug use, model the externalities associated with drug use, describe the incomplete information problem associated with drug use, | Introduction to Economics: Social Issues and Economic Thinking Wendy A. Stock PowerPoint Prepared by Z. Pan Chapter 15 the economics of illegal drugs Copyright © 2013 John Wiley & Sons, Inc. / Photo Credit: Daniel Grill/GettyImages, Inc. 1 Describe the incidence of drug use Model the externalities associated with drug use Describe the incomplete information problem associated with drug use Appraise the policy responses to drug use Analyze supply and demand issues in regulation policy Analyze the impacts of drug legalization Copyright © 2013 John Wiley & Sons, Inc. 2 After studying this chapter, you should be able to: 2 War on Drugs began in the 1970s Against heroin, cocaine, crack, marijuana, methamphetamine, etc. Federal funding for drug control programs $ billion annually 2 million Americans are arrested for drug-related offenses each year Copyright © 2013 John Wiley & Sons, Inc. 3 “War on Drugs” 3 Copyright © 2013 John Wiley & Sons, Inc. 4 The Incidence of Drug Use in . 4 Copyright © 2013 John Wiley & Sons, Inc. 5 The Market for Drugs 5 Externalities occur when some of the costs or benefits of a trade are imposed on people outside the trade. Negative externalities are costs that are imposed on third parties. Positive externalities are benefits that are imposed on third parties. Copyright © 2013 John Wiley & Sons, Inc. 6 Market Failure: Externalities 6 Private marginal costs are marginal costs that accrue only to the producers of a good or service. Social marginal costs are marginal costs that accrue to society as a whole. MCsocial = MCprivate + Negative Externality Copyright © 2013 John Wiley & Sons, Inc. 7 Private vs. Social Marginal Costs 7 Copyright © 2013 John Wiley & Sons, Inc. 8 Negative Externality in Drug Market 8 Imperfect information occurs when demanders or suppliers do not know the true costs and benefits associated with a good or service. . cigarette industry Copyright © 2013 John Wiley & Sons, Inc. 9 Market Failure: Imperfect Information

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• Economics of illegal drugs
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