Consider the sale or possession of illegal drugs and the effect of drug prohibition laws in terms of supply, demand and price elasticity of demand. Suppose that there is a drug raid in the city where drug enforcement authorities manage to confiscate a substantial amount of cocaine supply. As a result of this, the quantity demanded for cocaine drops from 1,000 grams to 600 grams as the price increases from RM50 per gram to RM120 per gram. i. i. ii. iii. iii. ii. Use a graph to illustrate the changes in demand and/or supply resulting from the drug raid. The demand curve for rice in Malaysia is given by Qd = 740-0.4Px -0.61 +8Py Where, Compute the price elasticity of demand for cocaine. Is demand elastic or inelastic? How can you explain this? What can you say is the 'unintended effect of this drug raid by authorities in terms of revenue to the suppliers? What other consequences may it lead to? Qd quantity of demand for rice Px = price of rice per kg | = consumer income, in thousands of Ringgit Malaysia (RM) Based on the equation above, what are the factors that affect the quantity of demand for rice in Malaysia? How do the changes in these factors affect the quantity of demand for rice? Is rice a normal or an inferior good? Suppose the government imposes a binding price floor in the rice market. Draw the supply and demand diagram to show the effect of this policy on the price and quantity of rice sold. Is there a shortage or surplus of rice? Explain why the following might be true: A drought around the world ra ses the total revenue that farmers receive from the sale of rice, but the drought only in Kedah (a state in Malaysia that grows plenty of rice) reduces the total revenue that Kedah farmers receive.