Suppose the U.S.Drug Enforcement Agency steps up its efforts to control the illegal importation of cocaine into the United States.What is the likely effect on the market for illegal drugs in the United States?
A)The price of cocaine and the quantity imported will both increase.
B)The price of cocaine is likely increase and the quantity entering the country decrease.
C)The price of marijuana, a cocaine substitute grown domestically, will fall.
D)The policy will have the least impact on those individuals whose demand for drugs is elastic.
E)Demand for drugs is highly inelastic and these policies have little or no effect on consumption.

Question

Quizplus · Accepted Answer

When the DEA steps up their efforts to control the illegal importation of cocaine, it becomes more difficult and risky to import cocaine. This will likely result in a decrease in the quantity of cocaine being imported into the United States, which could lead to an increase in price. However, the effect on price depends on the elasticity of demand for cocaine. If demand for cocaine is relatively inelastic, then the increase in price may not be significant enough to deter consumption. It is also possible that consumers may switch to alternative drugs such as marijuana, causing an increase in demand and a decrease in price for that substitute drug. Nonetheless, the most likely scenario is that the increase in enforcement will decrease the quantity of cocaine entering the country and increase the price for those who are still willing to purchase it.