Do all 6 questions. Each question is worth 10 marks, for a total of 60 available marks. The test is worth 40% of your course grade

Question 1 (10 marks total) Elasticity, Competition versus Monopoly, and Externalities

a) Drug policy hinges crucially on price elasticity of demand. Distinguish between inelastic and elastic demand and briefly explain the implication for demand abatement policies and supply reduction policies, respectively. (4 marks)

b) The evidence about the market structure of illicit drugs is conflicted. Give one piece of evidence that drug markets may be competitive. Give one piece of evidence that there may be the existence of monopoly in drug markets. (3 marks)

c)What is the economic concept of an externality? Explain how increased law enforcement in drug markets can create a negative externality and what are the consequences. (3 marks)

Question 2 (10 marks total) Economics of a Drug Gang

a) One of the principles of economics is that people respond to incentives. How does this principle explain why low level members of a drug gang are willing to do a very dangerous job for comparatively low pay? (4 marks) Page 2of 2

b) What policy directions does this situation suggest? (3 marks)

c) How does the behaviour of higher level members of the drug gang during a turf war (i.e. conflict over territory) show the economic concept of a compensating wage differential? (3 marks)

Question 3 (10 marks total) Prohibition and Legalization (Part 1) Positive Analysis

a) What are the effects of drug prohibition on demand? (2 marks)

b) What are the effects of drug prohibition on supply? (2 marks)

c) What is the expected net effect? (2 marks) d)What are the effects of prohibition on crime and how does this contrast with the perceived relationship between drug use and crime. (4 marks)

Question 4 (10 marks total) Prohibition and Legalization (Part 2) Normative Analysis

a) If one adopts the rational model, what does normative analysis say about the effects of policies to reduce drug use? (4 marks)

b) What is irrational consumption? Does the presence of irrational consumption necessarily mean that attempts to reduce consumption are a desirable policy? (3 marks)

c) How might prohibition worsen the effects of irrationality? (3 marks)

Question 5 (10 marks total) Legalization of Marijuana

a) What were the principle reasons for the legalization of marijuana in Canada? (3 marks)

b) What has been the effect on consumption and on harm to consumers, to date? (3 marks)

c) What has been the effect on the black market to date and why? (4 marks)

Question 6 (10 marks total) The Opioid Crisis

a) What has been the common misconception about opioid abuse, and what has recent economic research done in Canada, in fact, revealed? (5 marks)

b) What policy directions does this result suggest? (5 marks)