Use a demand and supply graph to show that Ted Koppels proposed explanation of a decrease in drug prices is incorrect. (Related to Application 6)

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Use a demand and supply graph to show that Ted Koppel’s proposed explanation of a decrease in drug prices is incorrect. (Related to Application 6)

Application 6 WHY LOWER DRUG PRICES? APPLYING THE CONCEPTS # 6: What explains a decrease in price? Ted Koppel, host of the ABC news program Nightline, once said, "Do you know what's happened to the price of drugs in the United States? The price of cocaine, way down, the price of marijuana, way down. You don't have to be an expert in eco- nomics to know that when the price goes down, it means more stuff is coming in. That's supply and demand." According to Koppel, the price of drugs dropped because the government's efforts to control the supply of illegal drugs had failed. In other words, the lower price resulted from an increase in supply. Is koppel's economic detective work sound? In Table 4.5, Koppel's explanation of lower prices is the third case-increase in supply. This is the correct explanation only if a decrease in price is accompanied by an increase in the equilibrium quantity. But according to the U.S. Department of Justice, the quantity of drugs consumed actually decreased during the period of dropping prices. Therefore, the correct explanation of lower prices is the second case-decrease in demand. In this case, lower demand-not a failure of the government's drug policy- was responsible for the decrease in drug prices. Related to Exercises 6.5 and 6.13. SOURCES: Kenneth R. Clark, "Legalize Drugs. A Case for Koppel," Chicago Tribune, August 30, 1988, sec. 5, p. 8; U.S. Department of Justice, "Drugs, Crime, and the Justice System" (Washington, DC: U.S. Government Printing Office, 1992), p. 30.