Chapter 8

Crime and Drugs: A Modern Dilemma

True/False Questions
1. Crime rates have fallen since 1980.
ANSWER: T
2. Generally, public goods are provided more efficiently by private firms than by the government.
ANSWER: F
3. Free riders can cause an inefficient level of a public good to be provided.
ANSWER: T
4. The efficient level of public safety would be provided by private firms.
ANSWER: F
5. Property rights protection requires the use of coercion. Many people believe coercive powers
should be reserved for representative government.
ANSWER: T
6. A free rider uses the goods or services provided by others without paying for them.
ANSWER: T
7. An economic approach to crime control implies that government can control crime, particularly
property crime, because it can create conditions in which crime does not pay.
ANSWER: T
8. The marginal social cost of crime control decreases as additional units of control are provided.
ANSWER: F
9. If the marginal social cost of crime control is less than the marginal social benefit of crime control,
then the quantity of crime control should be increased.
ANSWER: T
10. It takes less resources to reduce crime by a given amount if the crime rate is already low than to
reduce it by the same amount if the crime rate is high.
ANSWER: F
11. The efficient level of crime control is provided when the marginal social benefit of crime control
equals the marginal social cost of crime control.
ANSWER: T
12. Prohibition of drugs may impose costs on society by decreasing the number of property crimes
committed.
ANSWER: F
13. Prohibition will decrease the amount of money that addicts spend on illegal drugs.
ANSWER: F

Test Bank 2
14. According to the morality argument against drug use, the government should prohibit the use of
mind-altering drugs only if they are physically harmful to the individual.
ANSWER: F
15. Prohibition has significantly increased the cost of drugs because of the cartelization of smuggling
drugs and the increased risk of providing the drug.
ANSWER: T
16. Legalization of marijuana would probably result in a price increase due the high tax government
would place on the drug.
ANSWER: F
17. Prohibition increases drug use because drug pushers use tactics such as giving drugs away in an
attempt to create a market of dependent individuals.
ANSWER: F
18. It is not clear that prohibition decreases either drug use or drug abuse.
ANSWER: F
19. One unintended consequence of drug prohibition is the creation of criminals.
ANSWER: T
20. U.S. drug policies may have resulted in the recruitment of youth for the purpose of selling drugs.
ANSWER: T
21. Drug enforcement would be more efficient if officials followed the equimarginal principle in
allocating money among different enforcement activities.
ANSWER: T
22. If demand for drugs is very responsive to changes in price, then increased enforcement will
increase expenditures on drugs.
ANSWER: F
23. Hawks would be willing to trade increased drug use for a decrease in the spread of HIV infection.
ANSWER: F
24. Although owls would retain prohibition, bold, demand-side intervention is the core of their policy.
ANSWER: T

Multiple-Choice Questions
1. Which of the following is characteristic of a public good?
a. A public good is produced by the government sector.
b. It is relatively easy to prevent people from consuming the good.
c. Consumption of a public good by one individual does not decrease the quantity of the good
available for other individuals to consume.
d. A public good is excludable.
ANSWER: c

Test Bank 3
2. Which of the following is true of a public good?
a. A public good is nonexcludable.
b. A public good is nonrival.
c. Government provision is probably the most efficient method of providing a public good.
d. All of the above.
ANSWER: d
3. The marginal cost of providing a public good to an additional user is:
a. negligible.
b. zero.
c. increasing as the number of users increases.
d. quite large, which is why government must provide the good.
ANSWER: b
4. The free rider problem refers to:
a. a situation in which individuals who benefit from a good or service do not pay for it.
b. a situation in which individuals attempt to persuade government to provide goods and services
to them at no cost or at a reduced price.
c. a situation in which legislators enact inefficient programs in order to receive the political
support of lobbyists.
d. a situation in which some individuals provide basic necessities for other individuals who are
financially unable to provide the necessities for themselves.
ANSWER: a
5. Government provision of public goods is probably more efficient than private provision because:
a. the nonexcludable nature of public goods would force private firms to engage in costly
monitoring in order to know what to charge each individual for use of the good.
b. a private firm would charge a price for providing the good to additional users, while efficiency
would dictate the additional users be allowed to consume the good free of charge.
c. the free rider problem may result in less than the efficient amount of the good being provided
by private firms.
d. All of the above.
ANSWER: d
6. Many feel that government should provide property rights because:
a. monopoly provision of property rights is relatively more expensive than competition.
b. provision of property rights requires coercion.
c. the cost of providing property rights to additional individuals increases.
d. property right are a rival good.
ANSWER: b
7. Why might the marginal social benefit of crime control decrease as additional units are provided?
a. The feeling of security increases as more crime control is provided, therefore people are
willing to pay more for additional units.
b. The opportunity cost of crime control increases as more is provided, therefore people are
willing to spend less for additional units.
c. As people feel safer because of more crime control, they do not place as great a value on a
little more safety.
d. The opportunity cost of crime control increases as more is provided, however, people are
willing to spend more for additional units.
ANSWER: c

4 Chapter 8/Crime and Drugs: A Modern Dilemma

8. The marginal social benefit of crime control:
a. increases as additional units are provided.
b. decreases as additional units are provided.
c. is constant as additional units are provided.
d. increases as additional units are provided, but increases at a decreasing rate.
ANSWER: b
9. The marginal social cost of crime control increases because:
a. the opportunity cost of additional resources devoted to crime control decreases.
b. the lower the crime rate, the smaller the amount of resources that must be used to reduce the
crime rate by any given amount.
c. as the crime rate decreases, further reductions in crime may result in reductions in civil
liberties.
d. the probability of being a victim of crime decreases as more crime control is provided.
ANSWER: c
10. The marginal social cost of crime control:
a. increases as additional units are provided.
b. decreases as additional units are provided.
c. is constant as additional units are provided.
d. is zero as additional units are provided.
ANSWER: a
11. The efficient level of crime control occurs:
a. where the marginal social benefit and the marginal social cost curves intersect.
b. when the marginal social benefit and the marginal social cost of crime control are equal.
c. when the amount people are willing to spend for an additional unit of crime control is equal to
the cost of providing the additional unit.
d. All of the above.
ANSWER: d
12. Efficiency dictates that:
a. society be crime free.
b. there be some positive level of crime.
c. resources be used to eliminate crime in the inner city.
d. cities direct more resources to crime prevention.
ANSWER: b
13. Which of the following statements concerning crime control is correct?
a. For efficiency, the provision of crime control should occur at the point where marginal social
benefit exceeds marginal social cost.
b. For efficiency, the provision of crime control should occur at the point where marginal social
cost exceeds marginal social benefit.
c. Society should allocate resources so the crime rate eventually falls to zero.
d. A crime rate of zero would probably be inefficient.
ANSWER: d

Test Bank 5
14. The legalization of drugs would likely result in:
a. relatively large increases in supply and relatively smaller increases in demand.
b. relatively small increase in supply and relatively larger increases in demand.
c. relatively large decreases in supply and relatively small increases in demand.
d. relatively small decreases in both supply and demand.
ANSWER: a
15. Some individuals argue for the legalization of drugs on the basis that legalization would:
a. decrease organized criminal activity.
b. increase property crimes.
c. result in more corruption of police officials.
d. impose significant third party-effects on society.
ANSWER: a
16. Some people argue that prohibition:
a. restricts the freedom of informed adults to make their own decisions.
b. can result in the contamination of the illegal substance.
c. can decrease the amount of resources devoted to the control on non-drug crimes.
d. All of the above.
ANSWER: d
17. Many people argue that legalization of drugs would result in:
a. increased birth defects.
b. increased criminal activity.
c. greater family stability as drug users would no longer be stigmatized.
d. more hospital admissions as hospitals would have more drug-related violence to deal with.
ANSWER: a
18. Some people argue that legalizing drugs would:
a. result in significant third-party effects.
b. result in increased criminal activity.
c. lower birth defects.
d. decrease insurance rates.
ANSWER: a
19. As a result of the prohibition of drugs:
a. the supply of drugs will increase.
b. the demand for drugs will decrease.
c. drugs will contain fewer toxic substances.
d. All of the above.
ANSWER: b
20. Why might prohibition lead to an increase in the price of drugs?
a. Restriction of output.
b. Increased risk of punishment.
c. Increased risk of bodily harm due to a lack of property rights.
d. All of the above.
ANSWER: d

6 Chapter 8/Crime and Drugs: A Modern Dilemma

21. In general, drug prohibition:
a. tends to increase drug use as drug pushers entice customers into drug use.
b. tends to decrease drug use as drug prices increase.
c. tends to cause drug prices to fall as a result of decreased drug use.
d. tends to make drugs more attractive to adults because of the psychological need for adults to
rebel against established societal norms.
ANSWER: b
22. Prohibition will cause a relatively large decrease in the quantity of drugs demanded:
a. if users are addicts.
b. if drug use is nonrecreational.
c. if drug use is recreational.
d. if users do not respond much to a change in the price of drugs.
ANSWER: c
23. In the case of addicts, prohibition will:
a. tend to increase the revenues of drug dealers due to increased expenditures on drugs.
b. tend to decrease the revenues of drug dealers due to decreased expenditures on drugs.
c. initially decrease the revenues of drug dealers, but in the long run these revenues will increase
as users adapt to the higher drug prices.
d. cause a relatively large decrease in the output that drug dealers are able to sell.
ANSWER: a
24. In the case of a recreational user, prohibition will:
a. cause a large drop in the quantity of drugs demanded.
b. cause a small drop in the quantity of drugs demanded.
c. cause the revenues of drug dealers to fall.
d. None of the above.
ANSWER: a
25. Which of the following might be considered an undesirable consequence of drug prohibition?
a. A decrease in drug abuse.
b. The creation of criminals.
c. A decrease in the profits of drug cartels.
d. A decrease in the number of babies born addicted to drugs.
ANSWER: b
26. The equimarginal principle states that:
a. the benefit of all activities undertaken should be equal.
b. at the margin, the cost incurred by undertaking any activity should be at least equal to its
benefit.
c. the last dollar spent on one activity should give the same marginal benefit as the last dollar
spent on any other activity.
d. the marginal cost of all activities should be equal.
ANSWER: c

Test Bank 7
27. Which of the following statements is correct?
a. Because the penalties are similar for smuggling cocaine and marijuana, the attraction of
smuggling cocaine may have increased.
b. The severity of drug laws has encouraged individuals to deal more diluted forms of drugs such
as cocaine.
c. Laws have increased the amount of resources available to deal with nondrug crimes.
d. The relative price of marijuana decreased throughout the 1980s.
ANSWER: a
28. According to the doves:
a. drugs have no socially redeeming value, and strict enforcement of the drug laws should
continue.
b. drug use results from bad social situations.
c. adults given appropriate information make informed choices about drugs and government
should not interfere.
d. drug use exhibits a lack of concern for others.
ANSWER: c
29. Hawks advocate:
a. strict enforcement of drug laws.
b. allowing adults to make informed decisions about drug use without government interference.
c. emphasizing demand-side intervention to stop drug use.
d. decreasing social ills at the expense of increased drug use.
ANSWER: a
30. The owls policy position is characterized by:
a. bold, demand-side intervention to stop drug use.
b. achieving social goals such as decreased HIV infection even if at the expense of increased
drug use.
c. the desire to keep young people away from drugs.
d. All of the above.
ANSWER: d
31. Which statement is correct?
a. Crime rates of all kinds have plummeted in New York City since 1990.
b. New York City has allocated more resources toward crime control since 1990.
c. Evidence from New York City since 1990 appears to support the economic approach to crime
control.
d. All of the above.
ANSWER: d
32. Which statement is correct?
a. England has doubled its resources spent on crime control, and as a result, crime rates have
fallen.
b. England has substantially increased resources spent on crime control, but crime rates have
remained stable or increased.
c. Crime rates have remained stable or increased in England, and some believe that reduced
punishment is the reason.
d. England and the U.S. have had similar experiences with respect to crime control since 1981.
ANSWER: c

8 Chapter 8/Crime and Drugs: A Modern Dilemma

33. Which is correct about the Dutch drug policy versus the U.S. drug policy?
a. Dutch law distinguishes between soft drugs (like marijuana) and hard drugs (like cocaine).
b. Possession and distribution of drugs is not illegal in the Netherlands.
c. It is legal to sell drugs to minors under 18 in the Netherlands.
d. All of the above are true.
ANSWER: a

Critical Thinking Multiple-Choice Questions

34. Which of the following is the best example of a public good?

a. a McDonald's Big Mac.

b. security provided to a government official.
c. crime protection provided to a town.
d. a housing addition.
ANSWER: c
35. Which of the following is the best example of a public good?
a. a McDonald's Big Mac.
b. a pair of shoes.
c. a lighthouse.
d. a television.
ANSWER: c
36. Which of the following is the best example of a private good?
a. a computer.
b. property rights.
c. a legal system.
d. a national highway system.
ANSWER: a
37. Your neighborhood association votes to institute a Neighborhood Watch program. You refuse to
participate, but receive the benefit of this extra protection because you live in the neighborhood.
Your behavior is an example of:
a. the special interest effect.
b. the free rider problem.
c. a positive externality.
d. a negative externality.
ANSWER: b

Test Bank 9
Use the following diagram to answer questions 38 40.

Dollars

MCA

MBA 1
MBA 2
A1

A2

38. The efficient level of crime control is:

a. C1.
b. C2.
c. C3.
d. Cannot be determined from the information given.
ANSWER: b

Achievement

10 Chapter 8/Crime and Drugs: A Modern Dilemma

39. If the quantity of crime control is currently represented by C 1, then:
a. the marginal social benefit exceeds marginal social cost and the level of crime control should
be decreased.
b. the marginal social cost exceeds marginal social benefit and the level of crime control should
be decreased.
c. the marginal social benefit exceeds marginal social cost and the level of crime control should
be increased.
d. the marginal social cost exceeds marginal social benefit and the level of crime control should
be increased.
ANSWER: c
40. If the quantity of crime control is currently represented by C 3, then:
a. the marginal social benefit exceeds marginal social cost and the level of crime control should
be decreased.
b. the marginal social cost exceeds marginal social benefit and the level of crime control should
be decreased.
c. the marginal social benefit exceeds marginal social cost and the level of crime control should
be increased.
d. the marginal social cost exceeds marginal social benefit and the level of crime control should
be increased.
ANSWER: b
41. Suppose that at the current level of crime control MSB = $250 while MSC = $200. We know that:
a. there should be no change in the quantity of crime control.
b. the quantity of crime control should be increased.
c. the quantity of crime control should be decreased.
d. the quantity of crime control should be temporarily decreased and then returned to its original
level.
ANSWER: b
42. Suppose that at the current level of crime control MSB = $350 while MSC = $500. We know that:
a. there should be no change in the quantity of crime control.
b. the quantity of crime control should be increased.
c. the quantity of crime control should be decreased.
d. the quantity of crime control should be temporarily decreased and then returned to its original
level.
ANSWER: c
43. Suppose that at the current level of crime control MSB = $500 while MSC = $500. We know that:
a. there should be no change in the quantity of crime control.
b. the quantity of crime control should be increased.
c. the quantity of crime control should be decreased.
d. the quantity of crime control should be temporarily decreased and then returned to its original
level.
ANSWER: a

Test Bank 11
44. Suppose the marginal benefit of employing an additional police officer in efforts to decrease
marijuana abuse in Suburbia is $15,000 per year while the marginal cost is $35,500. In this
instance the city should:
a. probably hire the additional officer as the city gets a benefit of $15,000.
b. probably not hire the additional officer as the city incurs as cost of $35,500.
c. probably hire the additional officer as the city gets a net benefit of $20,500.
d. probably not hire the additional officer as the city incurs a net loss of $20,500.
ANSWER: d
45. Suppose the marginal social benefit of the last unit of crime control in Metropolis is $48,500 per
year while the marginal social cost of the last unit of crime control is $35,000 per year. In this
instance the city should:
a. cut back on crime control as the quantity of crime control currently exceeds the efficient level.
b. expand crime control as the quantity of crime control is currently less than the efficient level.
c. hire additional officers as long as the marginal social benefit associated with the marginal unit
is greater than zero.
d. hire additional officers until the marginal social benefit associated with the marginal unit is
zero.
ANSWER: b
46. "Responsible individuals should have the right to engage in drug use as long as no substantial,
involuntary harm is imposed on a third party." This is an example of:
a. the libertarian principle that favors the legalization of drugs.
b. the relative paternalistic principle that favors the legalization of drugs.
c. a rationalization used by users of drugs in order to justify their actions.
d. an irresponsible argument for drug use often put forth by the press and politicians who
envision the generation of substantial governmental revenues as a result of legalization.
ANSWER: a
47. "Individuals do not always know their own best interest. We should keep drug prohibitions in
force so that people do not harm themselves." This is an example of:
a. the libertarian principle.
b. paternalism.
c. hawk philosophy.
d. Walrasian philosophy.
ANSWER: b
48. Drug use is wrong because it is immoral and it is immoral because it enslaves the mind and
destroys the soul. In this case, government has a responsibility for prohibiting the use of midaltering drugs, regardless of whether drug-users are fully responsible and of the absence of
involuntary harm to others. This is an example of:
a. the libertarian principle.
b. paternalism.
c. hawk philosophy.
d. the morality argument.
ANSWER: d

12 Chapter 8/Crime and Drugs: A Modern Dilemma

49. Suppose government were to legalize the use of cocaine. As a result of this action there is likely
to be:
a. a decrease in the number of property crimes because it will cost less to purchase the drug.
b. a decrease in organized criminal activity associated with the drug trade.
c. a reallocation of resources away from drug crime control.
d. All of the above.
ANSWER: d
50. Which of the following would likely result if the use of a new drug, "euphoria," were made
illegal?
a. An increase in the demand for "euphoria."
b. A decrease in the supply of "euphoria."
c. A decrease in the price of "euphoria."
d. Less organized criminal activity associated with the trade of "euphoria."
ANSWER: b
51. If a new drug, crash, were made illegal there would likely be a large decrease in supply because:
a. there will be a large decrease in the nonprice cost of the drug.
b. smuggling the drug will likely take place under a cartel, thereby decreasing costs.
c. a lack of government-enforced property rights increases risks.
d. many drug dealers get a thrill from engaging in illegal activities.
ANSWER: c
52. Suppose that prohibition causes the price of marijuana to increase from $5.00 per ounce to $40.00
per ounce. Which of the following is most likely responsible for this increase?
a. Prohibition causes a decrease in demand for marijuana.
b. As a result of prohibition, the purity of the drug bought by consumers is questionable.
c. Prohibition causes a decrease in supply due to the increased risk associated with selling the
drug.
d. Prohibition will probably cause the sale of marijuana to take place in more competitive
markets as numerous dealers will emerge to take advantage of the profits that can be made
through illegal sales.
ANSWER: c

Test Bank 13
Use the following diagram to answer questions 53 56.

Price per Unit (Dollars)

S2
S

P3
P2
P

D1

Q2

Quantity per Week

53. Suppose a new drug, nirvana, were made illegal. We would expect:
a. demand to change from D2 to D1.
b. demand to change from D1 to D2.
c. supply to change from S2 to S1.
d. None of the above.
ANSWER: b
54. Suppose a new drug, nirvana, were made illegal. We would expect:
a. supply to change from S1 to S2.
b. demand to change from D2 to D1.
c. supply to change from S2 to S1.
d. None of the above.
ANSWER: a

14 Chapter 8/Crime and Drugs: A Modern Dilemma

55. Suppose a new drug, nirvana, were made illegal. We would expect:
a. price to fall to P1.
b. price to increase to P2.
c. quantity to increase to Q2.
d. price will increase to P3.
ANSWER: b
56. Suppose a new drug, nirvana, were made illegal. We would expect:
a. quantity to fall to Q1.
b. price to increase to P3.
c. quantity to fall to Q2.
d. price will fall to P1.
ANSWER: a
57. Suppose that the demand for cocaine falls as a result of prohibition. Which of the following
factors would cause this decrease?
a. An increase in the price of cocaine.
b. An increase in the nonprice cost of buying cocaine.
c. Users experience increased excitement due to the risk of buying cocaine in an irregular
market.
d. Cocaine will be sold in a less competitive market.
ANSWER: b
58. John is a hardcore heroine addict. Suppose heroine is initially legal. Government then passes a
law making the drug illegal. We would expect:
a. John's quantity demanded to fall by a large amount.
b. John's quantity demanded to fall by a relatively small amount.
c. John to kick his heroine habit.
d. John to engage in less criminal activity.
ANSWER: b
59. Mary is a recreational marijuana user. Suppose marijuana is initially legal. Government then
passes a law making the drug illegal. We would expect.
a. Mary's quantity demanded to fall by a large amount.
b. Mary's quantity demanded to fall by a relatively small amount.
c. Mary's quantity demanded to increase by a large amount.
d. Mary's quantity demanded to increase by a small amount.
ANSWER: a

Test Bank 15
Use the following diagram to answer questions 60 65.

Price per Unit (Dollars)

P
P

Q 2Q

Quantity per Week

60. In the above graph, the addict's demand for cocaine is represented by:
a. D1.
b. D2.
c. Q1.
d. Q3.
ANSWER: a
61. In the above graph, the casual user's demand for cocaine is represented by:
a. D1.
b. D2.
c. Q2.
d. Q3.
ANSWER: b

16 Chapter 8/Crime and Drugs: A Modern Dilemma

62. Suppose the price of cocaine increases from P1 to P2. The quantity of cocaine the casual user
demands will fall to:
a. Q1.
b. Q2.
c. Q3.
d. 0.
ANSWER: a
63. Suppose the price of cocaine decreases from P2 to P1. The quantity of cocaine the addict demands
will increase:
a. from Q3 to Q2.
b. from Q3 to Q1.
c. from Q2 to Q3.
d. from Q2 to Q1.
ANSWER: c
64. Suppose the price of cocaine increases from P1 to P2. The change in an addict's expenditures will
be equal to area:
a. A + B.
b. A + B + C.
c. A + B - F.
d. A + B + C - F.
ANSWER: c
65. Suppose the price of cocaine increases from P1 to P2. The change in a casual user's expenditures
will be equal to area:
a. A
b. A + B.
c. A - E - F.
d. A + B - E - F.
ANSWER: c
66. Suppose the marginal benefit per dollar spent on having uniformed officers walk a beat in the
inner city is $7,000 while the marginal benefit per dollar spent on having undercover officers
infiltrate drug rings is $6,000. This suggests that in terms of its budget:
a. the city needs to reallocate resources so more dealers are arrested.
b. the city needs to reallocate resources so more drug rings are infiltrated.
c. the city is currently spending money efficiently as both activities generate positive net
benefits.
d. the city needs to reallocate its resources so more officers walk a beat.
ANSWER: d
67. Suppose the marginal benefit per dollar spent on helicopter patrols in a city are $5,000. The
marginal benefit per dollar of establishing a community police center is $8,500. This suggests that
in terms of its budget:
a. the city needs reallocate resources so more helicopters are purchased.
b. the city needs to reallocate resources so more community police centers are established.
c. the city is currently spending money efficiently as both activities generate positive net
benefits.
d. the city needs to reallocate its resources to activities other than crime control.
ANSWER: b

Test Bank 17
68. Jennifer feels that adults should make their own informed choices about drug use. The
government should not interfere with these choices if no harm is imposed on others. Jennifer
would be classified as a:
a. hawk.
b. dove.
c. moralist.
d. Walrasian.
ANSWER: b

Essay and Discussion Questions

1. Evaluate the following statement. "In order for society to function efficiently, drug use
needs to be eliminated."
The student should recognize that the elimination of drug use is likely to result in an inefficient
use of society's resources. While there are benefits associated with elimination, there are also
costs. In order to efficiently allocate resources, the marginal benefit of drug control should be
equal to the marginal cost of control. This is likely to occur at some positive level of drug use.
Thus, drugs need not be totally eliminated in order for society to function efficiently.
2. In a 1997 television news special, Are We Scaring Ourselves to Death, a woman stated that
no risk was acceptable. Evaluate this statement in terms of economic efficiency.
The statement implies that risk should be eliminated regardless of cost. This, obviously, would not
be efficient. For example, totally eliminating the risk of being a victim of crime would result in
providing a level of crime prevention at which marginal social cost significantly exceeded
marginal social benefits. It terms of economic efficiency, there is some acceptable level of risk.
That occurs at the point where marginal social benefit equals marginal social cost.
3. Economists assume that individuals are rational and respond in predictable ways to changes
in the costs and benefits of their actions. Given the change in the types of drugs sold in the
United States would you argue that drug dealers are exhibiting rational behavior?
Given the small differential penalties for wholesaling different drugs, the behavior exhibited by
dealers is rational. There is little difference in the penalties for wholesaling marijuana, cocaine, or
heroine. However, the benefits of selling these drugs vary greatly. For example, the value of
cocaine per gram is relatively greater than the value of marijuana per gram. This means that the
net benefit of selling cocaine will be greater than the net benefit of selling marijuana. Over the
years there has been an increase in the sale of cocaine indicating that drug dealers are aware of this
difference in net benefits and are responding to this difference in a rational manner.
4. "If relatively more drug users are addicts rather than casual users, prohibition will be more
effective." Is this statement true or false? Defend your answer.
If the goal of prohibition is to decrease drug use, then this answer is false. Recall that prohibition
will result in a decrease in the supply of drugs thereby increasing price. In the case of drug
addicts, this will result in only a small decrease in quantity demanded. Thus, if there are a large
number of drug addicts, prohibition is not likely to be very effective in curbing drug use.
5. Evaluate the following statement. "We should legalize drugs. By following this policy we
will save all the money currently spent on the enforcement of drug laws and the prosecution
and punishment of drug dealers."
The student should recognize that while money will be saved on enforcement, prosecution, and
punishment, it is possible that this money will be spent on other areas. Recall that legalization is
likely to increase drug use and that there are several third-party costs associated with this use.

18 Chapter 8/Crime and Drugs: A Modern Dilemma

While money may be saved on crime control, more might be spent in treating birth defects and
other health problems related to drug use. Also, increased use may result in higher insurance costs
and increased injuries due to drug related accidents.
6. The drug policy implemented in the United States has basically been an owlish policy. Is this
statement true or false? Defend your answer.
The student should recall that the owlish policy stance is to have the lowest level of enforcement
compatible with keeping initiation of drug use down and encouraging the dependent to seek drug
treatment. Owls are willing accept greater drug use in return for better performance with respect
to other social goals. Enforcement budgets, increased severity of laws, and increased punishment
for drug possession and sale provide evidence for the dominance of the hawkish policy stance.
This is further supported by the unwillingness of the U.S. government to allow therapeutic
prescription of drugs such as heroine and marijuana. With such actions, the government is
suggesting that drugs have no socially redeeming value.

Problems
1. Using the following graph, find the total amount consumers spend on drugs.
Given the market demand and supply curves, we find that consumers are paying a price of $75 per
gram and are purchasing 15 grams per month. Total expenditures are equal to price times quantity;
thus total expenditures are $75 X 15 or $1,125 per month.

Price per Unit (Dollars)

75

D
15

Quantity of Drugs (Grams)

Test Bank 19
2. Use the graph below to answer the following questions:
a. If the supply of drugs falls from S1 to S2 by what amount will expenditures on drugs
change?
b. Given this change in expenditures, would you expect this person to be a casual user or an
addict?

Price per Unit (Dollars)

S

30
10

D
20 25

Quantity of Drugs (Grams)

a. If supply decreases from S1 to S2, the price of drugs will increase from $10 per gram to $30
per gram. Likewise, the quantity exchanged in the market will fall from 25 grams per month
to 20 grams per month.
Before the decrease in supply, total expenditures were $10 x 25 or $250. After the decrease in
supply, total expenditures are $30 x 20 or $600. Expenditures on the drugs increase by $350.

20 Chapter 8/Crime and Drugs: A Modern Dilemma

b. The increase in the price of drugs caused an increase in expenditures. This means that this
person does not reduce quantity much in response to the increase in price. He/she is most
likely an addict.
3. Suppose the price of cocaine increases from $25 per gram to $80 per gram. Using the graph
below determine if this individual is an addict or a casual user.

Price per Unit (Dollars)

80

25

D
5

25

Quantity of Drugs (Grams)

When price increases from $25 to $80 per gram the quantity demanded by the user falls from 25 to
5 grams. Total expenditures in this case decrease from $625 per month ($25 x 25) to $400 per
month ($80 x 5). Whenever an increase in price is accompanied by an decrease in expenditures,
there has been a relatively large decrease in quantity demanded. Given this response, the
individual is most likely a casual user.
4. Using the information in the following table, find the marginal social benefit of patrolmen
and the marginal social benefit of airplanes.
Total Social

Total Social

Benefit of

Benefit of

Quantity

Patrolmen

Airplanes

10
20
30
40
50
60

$200,000
350,000
450,000
500,000
525,000
535,000

$200,000
300,000
375,000
425,000
450,000
460,000

Test Bank 21

Marginal social benefit is the change in total benefit divided by the change in quantity. For
example, the marginal benefit of the twentieth patrolman is $15,000 ([$350,000 - $200,000]/[20 10]). The following table shows the marginal social benefit of patrolmen and airplanes.
Quantity

Marginal Social
Benefit of
Patrolmen

10
20
30
40
50
60

$15,000
10,000
5,000
2,500
1,000

Marginal Social
Benefit of
Airplanes
$10,000
7,500
5,000
2,500
1,000

5. Suppose the price paid for drug control is $25,000 per unit and the price paid for nondrug
crime control is $20,000 per unit. If the marginal social benefit of both the first unit of drug
control and the first unit of nondrug crime control is $500,000, what is the marginal benefit
per dollar of the first unit of each type of crime control?
The marginal benefit per dollar is found by dividing marginal social benefit by the price of the
good or service. In this instance, the marginal benefit per dollar of the first unit of drug control is
$500,000/$25,000 or $20. The marginal benefit per dollar of the first unit of nondrug crime
control is $500,000/$20,000 or $25.
6. The Smithtown City Council gives you a budget of $50,000 to allocate between drug
education and enforcement of drug laws. Using the information in the following table,
explain how this budget should be allocated between the two activities. Assume the price for
each unit of education is $5,000 and the price for each unit of law enforcement is $10,000.

Units
1
2
3
4
5
6

Marginal Benefit

Marginal Benefit

of Education

of Enforcement

$60,000
50,000
40,000
30,000
20,000
10,000

$80,000
70,000
60,000
50,000
40,000
30,000

In order to determine how to allocate the budget between these two activities, the equimarginal
principle must be followed. According to this principle the budget should be spent in such a way
that the marginal benefit per the last dollar spent on one activity is equal to the marginal benefit
per the last dollar spent on the other activity. The first step is to calculate the marginal benefit per
dollar. This is given by the formula:
Marginal Benefit/Price
The table below gives the marginal benefit per dollar of the two activities.
Education
Marginal Benefit

Enforcement
Marginal Benefit

22 Chapter 8/Crime and Drugs: A Modern Dilemma

Units
1
2
3
4
5
6

per Dollar
$12.00
10.00
8.00
6.00
4.00
2.00

per Dollar
$8.00
7.00
6.00
5.00
4.00
3.00

The first unit of education gives $12.00 of benefit per dollar spent while the first unit of
enforcement gives only $8.00. Therefore, the first $5,000 of the budget should be spent to
purchase a unit of drug education. The second unit of education gives $10.00 of benefit for each
dollar while the first unit of enforcement gives $8.00. Therefore, the next $5,000 of the budget
should be spent on enforcement. Continuing in this manner until the entire $50,000 is spent
results in the purchase of 4 units of drug education and 3 units of enforcement.