Answer to Question #114110 in Microeconomics for Sarah

Question

The government seeks to eliminate the use of the illegal drug cocaine. The government can! impose penalties on cocaine users or penalties on cocaine suppliers. Assume that the market! for such drugs is perfectly competitive.!
a. Show what would happen when the government imposes penalties on users or!
suppliers using separate diagrams.!
b. Should the government impose penalties on drug users or drug suppliers to achieve!
its objective?!

Answer 1

a) If the government imposes penalty on users the demand of the drug decreases and if penalty is imposed on the suppliers the supply is decreased.

b) The government should impose penalty on the suppliers so as to reduce the supply of drugs to users and eventually contain it.