In a Certain City, the Demand Function for Crack Cocaine

question 3

Multiple Choice

In a certain city, the demand function for crack cocaine is q = 1,000 - p, where p is the street price.The cocaine industry is competitive.Cocaine distributors can buy as much cocaine as they wish at a price of $50 per unit from Colombian sources.Whenever the city narcotics police catch a cocaine dealer, they confiscate all the cocaine that he has.The jails are full so they do not imprison the dealers.The police are able to catch the dealers about half the time, so they get about half the cocaine that enters the city.Instead of destroying confiscated crack, the police simply resell it on the street.If the original supply curve of cocaine on the streets was horizontal, what is the net effect of police activities on the market for crack in this city?

• A)The amount purchased on the street is about 50 units smaller than it would be with no enforcement.
• B)There is no effect, since all of the drugs reach consumers anyway.
• C)Crack dealers will stop dealing in this city altogether, since they can make more money elsewhere.
• D)The amount of crack purchased on the street decreases by about half.
• E)The quantity purchased by dealers rises to make up for the amount that is confiscated.

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Definitions:

Individual Demand

The quantity of a good or service that a single consumer is willing and able to purchase at various prices.

Damaged Goods

Products that have been impaired or harmed in some way, reducing their value, usefulness, or appeal.

High Margins

Refers to a significant difference between the cost of goods sold and the selling price, leading to high profits.

Metering

The process of measuring the consumption of utilities or services, such as electricity, gas, or water, typically for billing purposes.