Suppose that a drug that was illegal has been made legal. It is observed that the total expenditure on this drug falls with legalisation. While non-economists might explain this in terms of a change in consumer tastes, as economists we can explain this while sticking with the assumption that consumer tastes have not changed. Draw a demand and supply diagram showing the case where total expenditure clearly and unambiguously falls (with no shift in the demand curve) and provide a written explanation. ( maximum word limit: 100 words)

Suppose that a drug that was illegal has been made legal. It is observed that the total expenditure on this drug falls with legalisation. While non-economists might explain this in terms of a change in consumer tastes, as economists we can explain this while sticking with the assumption that consumer tastes have not changed. Draw a demand and supply diagram showing the case where total expenditure clearly and unambiguously falls (with no shift in the demand curve) and provide a written explanation. ( maximum word limit: 100 words)

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter10: Consumer Choice Theory

Section: Chapter Questions

Problem 10P

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