1. In tr* ruv. when supply am demand a-e c'astc. a »hin m supptj


This analysis shows why OPEC succeeded in maintaining a high price of oil only in the short run. When OPEC countries agreed to reduce their production of oil, they shifted the supply curve to the left. Even though cach OPEC member sold less oil, the price rose by so much in the short run that OPEC incomes rose. By contrast, in the long run, when supply and demand are more elastic, the same reduction in supply, measured by the horizontal shift in the supply curve, caused a smaller increase in the price. Thus, Ol'EC's coordinated reduction in supply proved less profitable in the long run. The cartel learned that raising prices is easier in the short run than in the long run.

Does Drug Interdiction Increase or Decrease Drug-Related Crime?

A persistent problem facing our society is the use of illegal drugs, such as heroin, cocaine, ecstasy, and crack. Drug use has several adverse effects. One is that drug dependence can ruin the lives of drug users and their families. Another is that drug addicts often turn to robbery and other violent crimes to obtain the money needed to support their habit. To discourage the use of illegal drugs, the U-S. government devotes billions of dollars each year to reduce the flow of drugs into the country. Let's use the tools of supply and demand to examine this policy of drug Interdiction.

Suppose the government increases the number of federal agents devoted to the war on drugs. What happens in the market for illegal drugs? As is usual, we answer this question in thn;e steps. First, we consider whether the supply or demand curve shifts- Second, we consider the direction of the shift. Third, we see how the shift affects the equilibrium price and quantity.

Although the purpose of drug interdiction is to reduce drug use, its direct impact is on the «filers of drugs rather than the buyers. When the government stops some dmgs from entering the country and arrests more smugglers, it raises the cost of selling drugs and, therefore, reduces the quantity of drugs supplied at any given price. The demand for drugs—the amount buyers want at any given price—is not changed. As panel (a) of Figure 9 shows, interdiction shifts the supply curve to the left from S, to S: and leaves the demand curve the same. The equilibrium price of drugs rises from P, to Py and the equilibrium quantity falls from Q, to Qj. The fall in the equilibrium quantity shows that drug interdiction does reduce drug use.

But what about the amount of drug-related crime? To answer this question, consider the total amount that drug users pay for the drugs they buy. Because few drug addicts are likely to break their destructive habits in response to a higher price, it is likely that the demand for drugs is inelastic, as it is drawn in the figure.

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