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Ecstasy for Customs in the Drug War would be Higher Prices
Subject Comparative statics
Topic Equilibrium
Key Words Prices, resources, supply
News Story

In Britain, the cost of "street" drugs is at an unprecedented low, according to the National Criminal Intelligence Service (NCIS). A survey of police, informers, and undercover operators finds that drugs bought on the street, in clubs, and by telephone are cheaper than at any time in the last six years. Of the eleven drugs studied, the prices of marijuana, ecstasy, and amphetamine are at an all-time low. The survey also shows that prices vary around the country. In a given place, higher prices are charged by dealers operating in pubs and clubs, and who sell to strangers on the street.

It is suggested that the government's war on drugs is failing, in spite of the additional resources given to the police and customs authorities. Indeed, the customs service says that the key indicator of success for them in cutting off supply is rising drug prices. Part of the problem is that dealers are increasingly relying on marijuana grown in secret greenhouses inside the country.

(Updated June 1, 2001)

Questions
1.

The intent of the customs service is to restrict the amount of drugs coming in the country.
a) Draw a supply and demand diagram of the market for drugs in Britain. Show the initial equilibrium price and quantity. Now illustrate the intended effect of the customs service's war on drugs. What should happen to the price and quantity of drugs?
b) How might increased production of drugs in secret greenhouses in Britain counteract the customs service's efforts? Illustrate.

2. The interpretation is that the war on drugs is failing. However, this may not be the only interpretation. a) What do you think the strategy of the police is?
b) How would this affect the market for drugs? Illustrate your answer in a new diagram.
c) Given this, would you say that a low price of drugs is an indicator of a failed drug war? Why or why not?
3. The price of drugs varies.
a) How would you account for the regional variations in drug prices?
b) How would you explain why prices are higher for people in pubs and clubs and strangers on streets?
Source Jason Bennetto, "Police fear drugs war is being lost as prices fall to record low," The Independent, March 26, 2001.

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