CASE STUDY UNIT 2
Drug interdiction vs. Demand side policy, Case Study – Page 105
Does Drug Interdiction Increase or Decrease Drug-Related Crime?
A persistent problem facing our society is the use of illegal drugs, such as heroin, cocaine, ecstasy, and
methamphetamine. Drug use has several adverse effects. One is that drug dependence can ruin the lives
of drug users and their families. Another is that drug addicts often turn to robbery and other violent
crimes to obtain the money needed to support their habit. To discourage the use of illegal drugs, the
U.S. government devotes billions of dollars each year to reducing the flow of drugs into the country.
Let’s use the tools of supply and demand to examine this policy of drug interdiction.
Suppose the government increases the number of federal agents devoted to the war on drugs. What
happens in the market for illegal drugs? As usual, we answer this question in three steps. First, we
consider whether the supply or demand curve shifts. Second, we consider the direction of the shift.
Third, we see how the shift affects the equilibrium price and quantity.
Although the purpose of drug interdiction is to reduce drug use, its direct impact is on the sellers of
drugs rather than on the buyers. When the government stops some drugs from entering the country and
arrests more smugglers, it raises the cost of selling drugs and, therefore, reduces the quantity of drugs
supplied at any given price. The demand for drugs—the amount buyers want at any given price—
remains the same. Graphically, interdiction shifts the supply curve to the left without changing the
demand curve. The equilibrium price of drugs rises, and the equilibrium quantity falls. The fall in the
equilibrium quantity shows that drug interdiction does reduce drug use.
Policies to Reduce the Use of Illegal Drugs
Drug interdiction reduces the supply of drugs. If the demand for drugs is inelastic, then the total amount
paid by drug users rises, even as the amount of drug use falls. By contrast, drug education reduces the
demand for drugs. Because both price and quantity fall, the amount paid by drug users falls.
Does Drug Interdiction Increase or Decrease Drug-Related Crime?
But what about the amount of drug-related crime? To answer this question, consider the total amount
that drug users pay for the drugs they buy. Because few drug addicts are likely to break their destructive
habits in response to a higher price, it is likely that the demand for drugs is inelastic. If demand is
inelastic, then an increase in price raises total revenue in the drug market. That is, because drug
interdiction raises the price of drugs proportionately more than it reduces drug use, it raises the total
amount of money that drug users pay for drugs. Addicts who already had to steal to support their habits
would have an even greater need for quick cash. Thus, drug interdiction could increase drug-related
crime.
Because of this adverse effect of drug interdiction, some analysts argue for alternative approaches to
the drug problem. Rather than trying to reduce the supply of drugs, policymakers might try to reduce
the demand by pursuing a policy of drug education. Successful drug education shifts the demand curve
to the left. As a result, the equilibrium quantity falls and the equilibrium price falls. Total revenue, P ×
Q, also falls. Thus, in contrast to drug interdiction, drug education can reduce both drug use and drugrelated crime.
Advocates of drug interdiction might argue that the long-run effects of this policy are different from the
short-run effects because the elasticity of demand depends on the time horizon. The demand for drugs
is probably inelastic over short periods because higher prices do not substantially affect drug use by
established addicts. But demand may be more elastic over longer periods because higher prices would
discourage experimentation with drugs among the young and, over time, lead to fewer drug addicts. In
this case, drug interdiction would increase drug-related crime in the short run but decrease it in the long
run.
Carney, J. (2017). Does drug interdiction increase or decrease drug-related crime? In N.G.
Mankiw, Principles of macroeconomics (p. 105). Boston, MA: Cengage.