South-Western College Publishing - Economics  
Swiss Fear Tourists May Visit for Alpine Highs
Subject Comparative Statics
Topic Equilibrium
Key Words Street Market, Sales, Producers
News Story

Switzerland is about to vote on whether the acquisition, cultivation, possession, and consumption of all drugs for personal use, including marijuana, cocaine, and heroin, should be decriminalized.

Those in favor state that the street market in drugs would disappear. At present, the efforts of the police to cut drug sales are frustrated because as soon as one dealer is arrested, a replacement appears. Legalization would reduce crime: the Swiss have already found that when the government distributes heroin to long-term addicts, related crime and deaths fall.

Those against -- including the government -- fear that there would be an influx of drug traffickers and tourists from the rest of Europe where legal constraints are greater. There is skepticism that the measure will pass in view of recent busts of drug producers and objections to legalizing hard drugs.

(Updated January 1, 1999)

Questions

1. a) Draw a diagram of the illegal street market for drugs with the axes representing the price and quantity of drugs. Show the initial equilibrium point.
  b) On your diagram, illustrate the effect of arrests of drug dealers, everything else remaining the same. What happens to the equilibrium price and quantity of drugs traded?
  c) Can you now explain why new dealers emerge, frustrating the efforts of the police to curb drug sales? On your diagram, draw what happens to the equilibrium price and quantity of drugs.
2. a) Draw another diagram of the street market for drugs and mark the initial equilibrium.
  b) Proponents of the constitutional amendment argue that legalization will eliminate the street market. Referring to your diagram, which curve(s) will move and why? Illustrate on your diagram.
3. a) Assume that the amendment passes. Draw a diagram of the legal market for drugs, showing the initial equilibrium price and quantity of drugs.
  b) Show what happens if, as the opposition to the amendment believes, the country is flooded with traffickers and drug tourists.

Source Associated Press, "Switzerland will vote Sunday on the legalization of all drugs", St. Petersburg Times, November 27, 1998

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