Final answer:
Medical cannabis has a less elastic demand than recreational cannabis because it has fewer substitutes, meaning that changes in price will have a smaller effect on the quantity sold of medical cannabis compared to recreational cannabis. The correct option is B.
Step-by-step explanation:
The elasticity of demand is a measure of how much the quantity demanded of a good responds to a change in price. In the case of medical cannabis versus recreational cannabis, the demand for medical cannabis is considered to be less elastic because there are fewer substitutes for patients who need it for medical reasons. As such, even if the price increases, these patients will still likely need to purchase medical cannabis, resulting in a smaller change in quantity sold compared to recreational cannabis which has more substitutes and where users can more easily change their consumption habits in response to price changes.
This concept, ceteris paribus, implies that all other factors being equal, a change in price would have a bigger effect on the quantity sold of recreational cannabis than for medical cannabis. To illustrate this with an example from a related market, the demand for cigarettes is relatively inelastic, particularly among adults. If taxes increase, cigarette prices go up, and while tax revenue for the government may increase, the quantity of smoking changes only slightly. In contrast, substances with a more elastic demand will see a more significant change in quantity consumed when prices change.