If i didn't believe there was a bunch of middlemen involved, or if I didn't believe their very involvement increased the final price; I would happily admit i'm wrong. That hella pissed me off yesterday that you treated me like a stuborn mule that makes up lies! But since you can neither refute my middleman claim, nor refrain from insulting my integrity in the claim. And because i am way too obsessive to walk away for long. I could try a different approach, perhaps one you can understand. The supply and demand model. After all, prices don't automagically drop 90% with the wave of a wand. There would need to be an explanation of how it happened.
Understanding the Demand for Illegal Drugs (2010)
Understanding the Demand for Illegal Drugs (2010) The supply-and-demand model provides the basic economic framework for drug policy. Efforts to provide economic models of illegal markets go back at least four decades (e.g., Becker, 1968), but the standard economic model has key limitations in understanding illegal drug markets. The implicit features of many legal markets in modern economies—for example, quality certification and available legal mechanisms to guard against fraud—are typically absent from illegal drug markets. Moreover, many key variables are difficult to observe. Illegal drug markets are also characterized by complex features, such as addiction (which means responses to increases and decreases in prices may differ) and high search costs (so that consumers must invest time in finding information about the product) that are sometimes found in legal markets but that are difficult to incorporate in simple models.
Despite these limitations, the basic supply-and-demand model provides a specific language to explore causal pathways of proposed public policies. It provides a framework to interpret available data on observed prices and quantities of illegal substances in particular markets. It focuses attention on basic parameters—the sensitivity of supply and demand to prevailing prices, production technologies, and costs—that are influenced by public policy. Finally, these simple models provide points of departure for richer theoretical and empirical investigations of particular markets. Figure 2-1 presents a very basic model to illustrate the impact of a supply-side law enforcement intervention.
FIGURE 2-1 Impact of a supply-side enforcement with a steep demand curve.
The market demand curve D1 slopes downward: at higher prices, users in the aggregate purchase a lower quantity of the drug in question. The market demand curve reflects two types of responses to higher prices: some drug users cut back on their consumption, while others may drop out of the market and become nonusers (at least of the drug in question). As is discussed below, addiction raises the possibility of asymmetry in that lower prices may increase participation; higher prices may not reduce participation in the short run.
The market supply curve S1 slopes upward: at higher prices, the supply network is willing to provide more drugs to the market. The market supply curve again reflects two types of responses to higher prices: some current suppliers expand the size of their drug-dealing business, and there may also be new entrants who provide new sources of supply.
A supply-side intervention—such as increased border interdiction or more intensive police actions against street dealers—causes the market supply curve to shift up, or alternatively to the left, to curve S2. The vertical distance between S1 and S2 may be interpreted as the increase in unit production and distribution costs induced by supply-side interventions.
This shift captures the idea that to compensate for the extra risks and costs created by the policy intervention, suppliers require a higher price to bring any given quantity of drugs to the market. How much the supply curve shifts depends on the effectiveness of the enforcement efforts and suppliers’ ability to respond to those efforts. Suppose, for example, that police increase arrests of street-level dealers. How much this raises unit production costs reflects how much drug-selling organizations have to raise wages to compensate dealers for the additional risk, on the assumption that the dealers can estimate that rise. It also reflects how effectively these organizations can shift their production and distribution systems in response to these enforcement shifts. If sellers can shift sales activities indoors or otherwise avoid the increased enforcement, the shift from S1 to S2 will be small.
The standard model assumes that the market price adjusts until an equilibrium is reached at which the quantity demanded equals the quantity supplied. The original equilibrium in Figure 2-1 is E1: Q1, P1. After the supply-side intervention, a new equilibrium is reached, E2: Q2, P2. This new equilibrium reflects an interaction of both supply and demand factors. The relative slopes of these curves determine the extent that increased production costs are borne by consumers in the form of higher prices. The supply-and-demand model yields the fundamental insight that a supply-side intervention on the model of the “war on drugs” should produce higher drug prices. At the new drug market equilibrium E2, the market price of the drug is higher (P2 > P1), and the quantity of drugs purchased and consumed is lower (Q2 < Q1).
Summary: If laws allowed traffickers to distribute legally then the lowered risk would translate to lowered prices. Prices will always reflect supply-side intervention.
