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The Afghan Opium Drug Policy: Is It Poppycock?
Subject Comparative statics
Topic Equilibrium
Key Words Drug trade, incentives, payments
News Story

Afghan farmers are being paid $250 per jirib (about 2000 square meters) of opium poppy to destroy their crop. If they do not, they face arrest. The interim government also called on farmers to recognize that the Islamic religion deems drugs to be evil.

The international community is concerned that a bumper crop is going to fuel the illicit drug trade in the region. Western intelligence estimates that the crop could produce 4,500 tonnes of opium or 450 tonnes of heroin. The UN's estimates are lower, but still above the 150 tonnes of heroin believed to have entered Europe annually in recent years.

It is questionable whether the Afghan government's incentives will be sufficient. Although the payments exceed what would be earned for growing wheat, they are far below the sums obtained for poppies on the free market. Moreover, the local warlords and drug leaders are still powerful relative to the national government.

(Updated June 15, 2002)

Questions
1.

Draw a supply and demand diagram of the Afghan market for opium poppies.
a) Show the initial equilibrium price and quantity.
b) Illustrate what happens to the demand curve and the equilibrium price and quantity when the Afghan government pays a lower, fixed, price for the destruction of each poppy grown by farmers.
c) Show how the revenue earned by farmers changes.
d) At the new equilibrium, what is the value placed on the opium poppies by consumers? How does this compare with the government's payments?
e) Given your analysis, why is this policy likely to be ineffective? Under what conditions might it work?

2. Draw a supply and demand diagram of the market for heroin in Europe. Mark the initial equilibrium.
a) Show what happens if the Afghan policy is unsuccessful in destroying poppies.
b) Show what happens if it is successful.
Source Jimmy Burns and Mark Turner, "Afghanistan's farmers to be paid to destroy opium crops," Financial Times, April 5, 20.

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