Monday, September 24, 2007

Why Are Drugs like Heroin so Expensive?

By making drugs illegal, it ironically, makes it more attractive to supply them. If it is was a competitive market with no government interference, the supply of cannabis would be very high. (apparently, it is easy to grow in a greenhouse) and therefore the price low.

However, the government has sought to restrict supply - make it illegal. Therefore, the price is pushed up by the lack of supply. This makes the good more attractive to supply. Remember also, that the demand is inelastic, therefore a fall in supply causes a correspondingly larger increase in price.

Demand for addictive drugs is so inelastic because when you are addicted, the drug becomes a necessity with no close substitutes

When governments say they are going to fight the criminals and try and destroy the supply of the drug. They often fail to point out that such schemes never actually work. What happens is that they reduce the supply a little by say 10% This just makes the drug more profitable.

This is not to say the government and police shouldn't try to catch criminals supplying drugs. They certainly deserve to be caught and imprisoned. But, it is just to point out that such operations do not address the underlying problem that illegal drugs are very attractive to supply.

Actually, for some drugs the price has fallen because even the illegal supply of drugs has been increasing.

See: ecstasy price falls to record lows - This shows the government are completely failing to stop the supply

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