Heroin Still a Strong Market in Some Parts of the World

1. Use a graph of supply/demand in the market for opium to indicate what is happening to the price of opium.

Supply and demand should be increasing at the same rate, creating no change in price.

2. Suppose the government were to induce farmers to produce wheat by guaranteeing them a price to produce it. How high would that price have to be, in relative terms?

It would have to be high enough to offer farmers an incentive away from producing poppies; that is, so that the economic profit from producing wheat was positive. According to the article summary, this would be a price for wheat at least eight or nine times as high as it is now.

3. In a graph of supply and demand for poppies, indicate consumer and producer surplus. Where does a bribe occur on this graph? Draw it, along with the new consumer/producer surplus after the bribe.

Assuming that the price of poppies does not change because of the need to bribe public officials, the bribe would reduce producer surplus, acting as a tax borne solely by the producer. Producer surplus would have fallen as a result.

Multiple Choice/True False Questions

1. True/False. According to the information in the summary, if an opium farmerís only alternative to producing poppies is to produce wheat, it must be the case that the farmerís economic profit is greater than his/her accounting profit.

     ANS. True

2. If the price of opium has remained roughly constant, it must be the case that
  1. Supply is rising faster than demand.
  2. Supply is rising more slowly than demand.
  3. Supply is rising at the same rate as demand.
  4. Supply is falling at the same rate as demand.
     ANS. C

3. Since the price to farmers has been roughly constant, bribing public officials to maintain opium production in Afghanistan will ____________ producer surplus.
  1. Increase
  2. Decrease
  3. Not change
  4. Not enough information to answer the question.
     ANS. B

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