Narconomics

In many cases, we simply leave the market to do what it does best – equate demand with supply and from this we get an equilibrium price and the optimal quantity. But, what happens if either the price or quantity is ‘incorrect’? What happens if the market fails to deliver an efficient outcome? In this case, we look to governments to intervene and ‘correct’ the market and such intervention can take place on the demand and/or supply-side. One area where it is generally felt that government intervention is needed is drugs and the trafficking of them across borders.

There are many ways in which governments have tried to tackle the problem of drug usage. The issue is that drugs are bad for individuals, for the community, society and the economy. Too much is produced and consumed and hence we have a classic case of market failure and this justifies government intervention.

But, how should governments intervene? With a substance such as drugs, we have an inelastic demand with resepect to price – any increase in price leads to only a small decrease in quantity. So any policy implemented by governments that attempts to change the market price will have limited effect in restricting demand. With globalisation, drugs can be moved more easily across borders and hence global co-operation is needed to restrict the flow. The article below considers the area of drugs and drug trafficking and looks at some of the policy options open to government.

Narconomics: The business of drug trafficking Houston Chronicle (16/3/16)

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