Economics of Marijuana in the Usa

Jack Doherty

Microeconomics - Yarti Deonaran

September 30, 2014

Economics of Marijuana in the USA

Millions of people across America, and even around the world, use marijuana everyday, but what exactly is it? The National Institute on Drug Abuse defines marijuana as “the dried leaves, flowers, stems, and seeds from the hemp plant Cannabis sativa, which contains the psychoactive (mind-altering) chemical delta-9-tetrahydrocannabinol (THC), as well as other related compounds”(NIDA). Marijuana, frequently referred to as weed or cannabis, is the most common illicit drug used in the United States. It is often frowned upon mainly because it is still illegal in a majority of the country. Cannabis activists from all around the US have been fighting for legalization of the drug for years. Their main argument is that marijuana is actually a much less dangerous drug than alcohol and tobacco, which are both legal. About 50,000 people die each year from alcohol poisoning, and there are over 400,000 deaths a year attributed to tobacco smoking. On the other hand, marijuana is considered non-toxic and cannot cause death from an overdose. Because many states have yet to pass laws for legalization, only a small percentage of marijuana is sold legally through licensed dispensaries run by state governments. The rest is sold illegally on the streets, which is where the real dangers of marijuana arise. More and more states are passing laws to decriminalize marijuana and to allow its medicinal use. Recent progress in legalizing marijuana in the United States has created an opportunity to develop new marijuana market. Colorado and Washington are the only two states to legalize the previously banned drug for recreational use; meaning that anyone ages 21 and over can purchase and use marijuana without breaking the law. These two states will provide a home for the start of an industry that is predicted to produce a revenue that ranges from $10 billion to $100 billion (CNBC).

Many of the economic terms we learned in class are applied everyday in the legal marijuana market. Because it is a brand new market, the marijuana industry is as close to a perfectly competitive market as one can get. A perfectly competitive market contains buyers and sellers that trade identical products so that each buyer and seller is a price taker. There are no firms large enough to have market power to set the price of a certain product. The quantity supplied is the amount of a product the producer are willing and able to sell at a certain price and time, ceteris paribus. Price elasticity of supply is how a products supply responds to changes in price for that good. The supply of