Demand and Supply of Marijuana Free-Samples Myassignmenthelp.com

Questions: 1.How will legalisation likely Impact Supply and Demand of Marijuana in California? 2.To what extent will a tax imposed on the Consumption of marijuana Enable the California State government to Collect a large amount of tax revenue? 3.How might the Introduction of Recreational Marijuana Impact tax revenues from tobacco? Answers: Introduction: Marijuana is worlds one of the most abused drugs. There are a lot of myths surrounding marijuana. However, with the improvement and innovation science, the gap between the myths and facts is decreasing. In United States, there are many states, which have legalized the usage of marijuana and others have not. On November 2016, the people of California voted for legalizing marijuana in the state and Proposition 64: California Marijuana Legalization Initiative was effective immediately. It allows the recreational production and usage of marijuana by the people who are above 21 years of age, and provides industry licenses for marijuana products (Banys Cermak, 2016). 1.Effects on demand and supply It is expected that legalization would increase the demand and supply of marijuana in the state. The illegal activities concerning the production and use of marijuana are expected to go down, and also the penalties of being caught are also likely to reduce. Thus, the demand would rise for the product. The taxation on marijuana would bring about more revenues as production would increase due to legalization. However, the maximum demand would increase from the youth and some from the medical sector. As the demand is expected to go up, the supply would go up too and price would increase (Carah et al., 2015). The legalization of production is helpful for production. However, if the price remains the same, then the demand and supply would both increase due to the legalization. Hence, the determining factors of demand for marijuana are the utility, demand for complementary goods, existence of black market and taxation. Factors for supply would be increase in the number of producers and low er cost of raw material and more profit margin (Murphy Carnevale 2016). Figure 1: Changes in demand and supply curve of marijuana due to legalization (Supply increases more than demand) (Source: Author) Figure 2: Changes in demand and supply curve of marijuana due to legalization (Supply increases less than demand) (Source: Author) Figure 1 and 2 show that, as the demand and supply both increase due to legalization, the new equilibrium price would fall. The amount of price fall depends on the amount of shift in the both the curves. However, if the amount of increase in the supply is greater than the increase in demand, then price would fall, and if the increase in supply is less than the increase in the demand, then price would rise. Before legalization, there was less supply of marijuana than the demand. Hence, excess demand prevailed in the market. Thus, price was much higher for the illegal product (Murphy, 2017). 2.Effects of taxation Legalization of marijuana not only makes the product more available in the market, but it also opens a source for the government to earn revenue. Like any other commodity, the government imposes a tax on the product. This would affect the supply of the product negatively. Hence, when there is taxation on the prices of marijuana, it reduce the supply and would push up the price. Therefore, the ultimate effect would be a rise in the price (Houston, 2017). Now, price elasticity of demand refers to the change in the quantity demanded of the product due to one percent change in the price. The price of marijuana is quite high in the US states where it is not legalized yet. This is due to high competition among the drug dealers and medical pharmacies. However, in California, the price would be comparatively low due to legalization, and the product is relatively price inelastic. Due to the utility, even if the price increases, the demand will not fall much (Murphy, 2017). Figure 3: Effects of taxation on the relatively inelastic demand curve (Source: Author) The above figure shows the effects of taxation on the relatively inelastic demand curve for marijuana. The supply curve shifts upwards to S2 from S1, and the price increased to P2 from P1 by the amount of imposed tax amount T. As the demand curve is relatively inelastic for marijuana, the quantity demanded falls a small amount due to a rise in price. In California, the sales tax is 7.5%. Experts suggest a 15% tax would generate a high amount revenue for the government from recreational use of marijuana. This high rate would also discourage people for unnecessary or overuse of the drug ("Tax Guide for Medical Cannabis Businesses", 2017). 3.Impact on the revenues from tobacco California earns a huge revenue every year from the tobacco sales. Tobacco products are extremely cheaper in California, and the amount of state tax is 0.87 cents per pack of cigarettes. Cannabis and tobaccos are substitute goods. However, both the products are promoted in a similar manner, that these reduce stress and help people to relax. The recent studies show that people have reduced smoking due to health awareness (Tate, Taylor Sawyer , 2013). At the same time, science has proved that smoking cannabis is less harmful than smoking tobaccos. Hence, when the cannabis become legalized in California, the sales of tobacco would decline. Thus, revenue from tobacco would decline too. Hence, it can be said that the fiscal impact suggested in the Proposition 64, is quite realistic. As the sales would increase, especially for specific purposes, the imposition of tax would not affect much the demand for recreational marijuana. Hence, the revenue earned from cannabis would increase (Park, 2017). Conclusion Legalization of recreational use of marijuana is a huge step for California. That is not only helpful for medical science, but has economic impacts too. As the demand and supply for marijuana increase, the government would earn more revenues from the legalized product. Price would increase too. The factors for price rise, other than demand, can be attributed to the cost of packaging, labeling, and other compliance actions as per license, hoarding of the cannabis, and product testing in the medical units. However, as the product is relatively price inelastic, the price would not affect the demand for the product much. References: Banys, P., Cermak, T. L. (2016). Marijuana Legalization in California: Rational Implementation of the Adult Use of Marijuana Act (AUMA).Journal of psychoactive drugs,48(1), 63-65. Carah, J. K., Howard, J. K., Thompson, S. E., Gianotti, A. G. S., Bauer, S. D., Carlson, S. M., ... Knight, C. A. (2015). High time for conservation: adding the environment to the debate on marijuana liberalization.BioScience,65(8), 822-829. Murphy, P., Carnevale, J. (2016). Regulating Marijuana in California.Sacramento, CA: Public Policy Institute of California. Murphy, R. (2017). A 'massive undertaking' as California races to regulate marijuana so legal sales can begin Jan. 1. Desert Sun. Park, K. (2017). Clearing up cannabis confusion in California: What you need to know. KCRA. Tate, K., Taylor, J. L., Sawyer, M. Q. (2013).Something's in the Air: Race, Crime, and the Legalization of Marijuana. Routledge. Tax Guide for Medical Cannabis Businesses. (2017). Boe.ca.gov