What Role Does the Government Play in Creating Underground Markets

question 43

Essay

What role does the government play in creating underground markets in marijuana and cigarettes in Canada? What are the main differences between the creation of these two underground markets as far as public policies are concerned?

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Definitions:

Diseconomies of Scale

The situation in which the cost of producing each individual unit rises when a company's production volume grows, often resulting from inefficiencies and a rise in complexity.

Long-run Average Total Cost

The cost per unit of output in which all inputs, including capital, are variable, showing economies and diseconomies of scale over time.

Increasing Returns to Scale

A situation in which a proportional increase in all inputs results in a more than proportional increase in output, demonstrating economies of scale.