Assignment:
Instructions:
The attached article is from The Wall Street Journal, April 25-26, 2009. If needed, the article could be accessed online. In addition, it can also be accessed through the Drexel libraries.
Triggered by the massive drug-fueled murders in Mexico, the article discusses possible policies in relation to drug use and distribution. The two authors take opposing views. I would like you to critically analyze the article by using graphical analysis and brief explanations, and applying the supply and demand tools as discussed in class. Please answer all questions.
1. What are the two opposing views in terms of drug legalization? Which author supports which view?
2. This and the next several questions are related to the piece by Steven Duke. It is clear, as the author claims, that the US government should cooperate with the Mexican government in arresting and prosecuting drug traffickers. Use simple supply and demand analysis to show the effects on the market equilibrium price and quantity of drugs sold after lowering the number of traffickers.
3. Duke then discusses the popular view that strict gun control in the US will help resolve the problem. Describe his argument. What is his
conclusion?
4. It is clear now, Duke says, that US authorities are incapable of keeping drugs south of the border. A "bail out" for the Mexican government will not work either. Why?
5. Next, Duke argues that the Obama administration should "really open to change" by decriminalizing illegal drugs. The current administration recognizes that US is the main market for Mexican drugs: "US demand for illegal drugs is insatiable," Secretary of State Hillary Clinton says. Thus, drugs have to be decriminalized in both the US and Mexico. Use a graph to represent the difference between the US demand and the Mexican demand for drugs.
6. Duke provides evidence from Portugal that decriminalization of drugs works. What happened to the number of users in Portugal after the process of legalization took place? What does this imply for the demand of drugs?
Use graphical analysis similar to the ones discussed in class to represent the effects on drug users, in terms of price and quantity consumed, and the effects on drug dealer revenues if drugs are legalized in the US. (Hint: Clearly capture the fact that the demand for drugs in Portugal was inelastic.
Your graph should look exactly as the "Bumper harvest paradox" graph.)
7. Duke goes on to argue that after drugs are legalized, the US government should tax their producers, which will result in huge tax revenues. Start with the drug market equilibrium from the previous part and capture the effect of taxes. (Hint: Taxing drug production acts like an additional cost for producers. Keep demand the same and account for taxing by shifting the supply curve accordingly.)
Readings:
Drugs: To Legalize or Not
By JOHN P. WALTERS