If markets for addictive drugs have a more elastic demand curve than is often thought, and if addicts tend to be unstable people with low incomes, we might speculate that the most likely reason for the surprising elasticity estimates is that
A)The substitution effect is smaller than expected because addicts aren't as addicted as we
B)thought
C)The income effect has a more constraining effect than we had anticipated
D)Addictive drugs are inferior goods
E)The income and substitution effects work in opposite directions

Question

Quizplus · Accepted Answer

The question states that addicts tend to be unstable people with low incomes, which means that the income effect, where a change in income leads to a change in demand, would have a more constraining effect than anticipated. This suggests that the elasticity of demand for addictive drugs is higher than previously thought.

If Markets for Addictive Drugs Have a More Elastic Demand