Question

1. The sale of illegal drugs has consequences for both sellers and buyers. However, legal penalties are generally imposed aggressively on the suppliers of drugs rather than on the demanders. Think about the impact these penalties likely have on supply and demand. How might the effects of prohibiting drugs have been different had legal penalties been imposed more aggressively on demanders rather than on suppliers?

2. You learned about government-imposed price controls and the theory behind them. These price controls are often the subject of political debates. Address the following prompt based on how the price system is impacted by supply and demand: Why do you think governments frequently attempt to control apartment rents but not house prices?

Answer 1

If legal penalties were issued on the demanders, then the overall demand in the market would decrease, as there are more demanders in a market then there are suppliers, so having larger penalties on those demanding the drugs will decease those wanting them.The main concept here is that the penalty on demanders can reach more people and have a large impact, as the market for illegal drugs if often controlled by a small amount of suppliers. As a result, impacting those who demand the drugs will have a much greater impact on reducing ing demand vs targeting the suppliers with stricter penalties.

2. The main reason why governments attempt to control the apartment rent and not the price of houses is that it is the low and middle income people who look for rented apartments as they cannot buy a home, while it is the rich people who have high purchasing power to buy a house.