Chapter 15: The Economics of Illegal Drugs

US lawmakers

________ have used both demand- side and supply- side policies as part of the War on Drugs.

Federal funding

________ for drug control programs is approximately $ 15.5 billion annually, and roughly 2 million Americans are arrested for drug- related offenses each year.

Supply side policies

________ involve interdiction (disrupting the transport of drugs), destroying drug production facilities, eradicating crops, and pressuring governments in other countries to help reduce exports of drugs to the U.S.

Negative externalities

________ are costs that are imposed on third parties.

Positive externalities

________ are benefits that are imposed on third parties.

Because drugs are bought and sold in markets, policy makers have two basic tools at their disposal to reduce drug use

policies to reduce the demand for drugs or policies to reduce the supply of drugs

The downward slope of the demand curve reflects

the inverse relationship between the price of the good and the quantity demanded.

Private marginal cost

marginal costs that accrue only to the producers of a good or service.

Social marginal cost

marginal costs that accrue to society as a whole.

In a market plagued by imperfect information

producers or consumers have only limited information about a good or service, and they may not be aware of the full costs and benefits of producing or consuming the good.