Economic Implications of Legalising Cannabis: A Discussion

The Market for Marijuana and the Effect of Legalisation on Price: A Diagrammatic Analysis

In the essay, you are expected to use the concepts and the analytical tools learned in this course to discuss the economic implications of legalising cannabis (marijuana). In 2012, Colorado and Washington become the first two states to legalize the recreational use of cannabis in the United States. Explain why marijuana prices declined sharply by 70% in Colorado between 2014 and 2018. Use a diagram of the market for marijuana to illustrate your point. Hint: Was the market of marijuana perfectly competitive before legalization? Who were mainly involved in the business of marijuana at that time? Was the business of marijuana profitable at that time? How did legalization affect the number of marijuana sellers and buyers in Colorado in 2014 and in 2018, respectively? [In the United States, the recreational use of marijuana was legalized only in 4 states in 2014, while it was legalized by 15 states and Washington D.C. in 2018.] Please notice that people from elsewhere may travel to Colorado or other states where the recreational use of marijuana was legal for consuming marijuana. How would marijuana legalization in other states affect the market demand and supply in Colorado? Did the supply effect dominate or did the demand effect dominate? Why? Explain with the help of a numerical example why California and Maine tax marijuana by weight instead of price. Hint: Suppose that the government tends to maximize the tax revenue. How would the marijuana price drop affect the government tax revenue if marijuana was taxed by price? Did the government anticipate the marijuana price drop when designing the tax scheme? You may come up with an artificial numerical example to support your findings. Using the concept of substitutes and complements, explain with the help of a diagram how legalising marijuana may possibly affect the sales of alcohol and cigarettes. When the State government evaluates the effect of legalising marijuana on fiscal revenue, should it look only at the sales of marijuana? Or, should it also consider the changes in the sales of alcohol and cigarettes? Hint: are alcohol and cigarettes substitutes or complements of marijuana? (The answer to this question depends on the actual consumption data. If you do not know the data, you may make an assumption. Then, you should stick with this assumption for the rest of your analysis.) How would the change in the price of marijuana possibly affect the market demand curve for alcohol/cigarettes? As mentioned on the webpage of the United States CDC (Links to an external site.) (Centers for Disease Control and Prevention), marijuana use may have a wide range of health effects on the body and brain. In some cases, it may require medical treatments. The public healthcare system in New Zealand gives permanent residents access to free or heavily-subsidised hospital care, as well as emergency treatment, which is then funded from government expenditure.  Given the public healthcare system in New Zealand, explain the private and social costs of recreational marijuana use in New Zealand. Explain with the help of a diagram whether the equilibrium quantity of recreational marijuana use in a perfectly competitive market is too low or too high, compared to social optimum. Discuss the policy options with which the New Zealand Government can internalise the externality of recreational marijuana use on the public healthcare system. [hint: tax, the command-and-control approach, education, etc.] Note: This essay assignment does not require a standard structure of introduction, body and conclusion; however, please read the marking scheme below, as other aspects of formal essay writing, such as paragraphing and logical sequencing of arguments and referencing are required as part of this assignment. Acknowledgement of all sources using the APA (7th) style in-text citations, and provision of full reference list in APA (7th) style.   MY WRITING: 1.?price drop?(diagram) Colorado legalised the marijuana for recreational use in 2012. The legalisation caused price drop in a dramatic way. Before the legalisation, the black market of the marijuana had(?) high barriers to entry because of the difficulties to produce and manufacture. This obviously limited the competition in the black market. Besides, those a few producers tend to be monopolistic by restricting the supply and raising the price of the illegal marijuana in order to maximise their profits. On the other hand, as we can see from the diagram, the supply curve shift to the right and the demand curve shift further to the left. In 2014, people from states with illegal use of the marijuana would come to Colorado just for purchasing the marijuana.  As the number of the legal states quadrupled in 2018,  much less people would travel to Colorado, which makes a serious decline in the demand of  the marijuana. Meanwhile, the legalisation has setup a fast-growing drug-related industry in Colorado, from cultivating to manufacturing, from wholesales to retails. The number of producers and retailers increases in Colorado even after many more states legalised the recreational use of the marijuana. Therefore, we can conclude that the demand affect dominate in this case by comparing the demand of the marijuana with the supply of the marijuana in Colorado between 2014 to 2018. 2.(tax by weight not price)(numerical example) Did the government anticipate the marijuana price drop when designing the tax scheme? As we can see from the example, legal marijuana prices from those four states with legalisation of the recreational use for marijuana are all in steadily decline. From example, the price dropped by around 65% in Oregon between 2016 and 2019.  Thus, the tax revenue would also in steadily decline if the government tax marijuana by certain percentage of the price under this circumstance. In the contrary, with the taxation on weights, the total tax revenue would not be affected by any market activities. 3.(sales of alcohol and cigarettes)(diagram) According to the consumption data(), alcohol use in those states with legal recreational use for the marijuana remain similar to national average across the country between 2011 to 2016. It indicates that the demanding of alcohol does not change much with the marijuana legalisation. Hence, we conclude that alcohol is neither substitute or complements of the marijuana. On the other hand, cigarettes usage is in steadily decline in those four states after the legalisation of the marijuana. This suggests that the cigarettes is indeed the substitute with the marijuana. As price dropped for the legal marijuana over time, more people would choose the marijuana rather than the cigarettes for recreational use. This would make the demand curve for cigarettes shift to the left, while leaving the demand curve for alcohol unchanged. (diagram) The recreational use of the marijuana has several private and social costs in New Zealand.   Firstly, the long-term health issue associated with the marijuana use bring to the spotlight as the demanding of the recreational use for the marijuana increases.(?) According to the USCDC(cite), any use of the drugs may have negative impacts on brain health, cancer, chronic pain, heart health, lung health, mental health and poisoning, etc. Secondly, the study(?) shows that drug-associated car accidents are around () Meanwhile, the public healthcare system might be overloaded(more). This seem obvious that the social costs  are pretty high 5.(tax to education) Given the negative externalities the recreation use of marijuana have on public healthcare system, With taxation on the recreational use of the marijuana, the government could set up some programs for training those who have negatively affected by the marijuana use.