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Distributors of cigarettes earn some monopoly profits in their local markets but see them slowly erode as substitutes enter the market. Suppose Nebraska has scheduled a vote on the legalization of marijuana. Additionally, suppose that marijuana and cigarettes are substitutes and that the legalization of marijuana would lead to a decrease in the price of marijuana.

Given the relationship between marijuana and cigarettes, the legalization of marijuana would lead to_______(an increase/a decrease) in demand for cigarettes. Thus, distributors of cigarettes would likely____(Support/oppose) the legalization of marijuana.

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Chika Ilonah
Chika IlonahLv10
28 Sep 2019

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Related questions

I need a clear and detailed briefing of this question by analyzing the problem by asking the below three questions and Answer to these questions will suggest solutions centered on.

Question: Snacks, Beer, and Marijuana

“Snacks food venders and beer distributors earn some monopoly profits in their local markets but see them slowly erode from various new substitutes. When California voted on legalizing marijuana, which side would you think that California beer distributors were on? What about snack food venders? Why?”

First, explain it and then analyze the problem by using these three questions:

1. Who is making the bad decision?

2. Does the decision maker have enough information to make a good decision?

3. The incentive to do so?

Answer to these questions will suggest solutions centered on:

1. Letting someone else make the decision, someone with better information or incentives

2. Giving the decision maker more information

3. Changing the decision maker’s incentives.

Am I using economic concepts correctly in the following? Please correct and clarify for me if not.

In this scenario, we want to curb or decrease the use of drugs and the use of the services provided by prostitution. So, if you legalize either, and then in policy increase the prices for those goods or services, you can eliminate price-sensitive or elastic consumers, like teenagers. It does not solve the problem, but this is just an economic scenario, right? It will decrease documented use and users, but since these were black market operations, to begin with, there will always exist a black market to supply what the public markets cannot. Quality in these black markets will be poor, but prices will reflect this. Inelastic consumers, such as working adults, in the face of a price increase, will choose less expensive substitutes rather than abstain, and will even choose illegal avenues to attain before abstaining, or going without.

Another conundrum in the drug arena is the addictive vs non-addictive substances debate. Highly addictive substances like cocaine and heroin will experience less elasticity than substances such as nicotine or marijuana. Because it can be argued that addiction diminishes rational choice, increases in price that would normally cause users to refrain from use are not effective and thus do not end up lowering the quantity of drugs demanded, addiction counteracts theory and demand only decreases negligibly. Here, revenues would increase for the suppliers of such goods and services, while not even making a dent in the quantity of drugs demanded. Profits however may not increase as interdiction efforts also increase a supplier's production and distribution costs.

Suppose that the only two firms in an industry face the market (inverse) demand curve p=160-q. Each has a constant marginal cost equal to 16 and no fixed costs. Initially, the two firms compete as Cournot rivals (Chapter 11) and each produces an output of 48. Why might these firms want to merge to form a monopoly? What reason would antitrust authorities have for opposing the merger? (Hint: Calculate the price, profits, and total surplus before and after the merger) Suppose that each firm has fixed costs, F, of $2,000 that are avoidable if a firm does not produce. The firms would favor the merger because combined profit would increase by $__ and the profit-maximizing price would increase by $___nothing. (Enter your response rounded to two decimal places) Antitrust regulators might not oppose the merger because, although consumer surplus would decrease by $____, the total surplus would increase by $___. (Enter your response rounded to two decimal places)

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