Question

Cannabis legalization is likely to increase both supply and demand for cannabis. As a result, we would expect the new post-legalization equilibrium quantity to be:

A. The same as pre-legalization

B. Greater than pre-legalization

C. Less than pre-legalization

If the demand and supply elasticities are similar and supply shifts out by more than demand, then what can we say about the post-legalization price:

A. The post-legalization price will be approximately the same as the pre-legalization price.

B. The post-legalization price will be lower than pre-legalization.

C. The post-legalization price will be higher than pre-legalization.

Answer 1

With the legalization of cannabis, we can expect a greater equilibrium quantity due to increased supply and demand, and if supply increases more than demand, the post-legalization price would be lower.

Elasticity indicates the responsiveness of quantity demanded or supplied to price changes, affecting how the market adjusts to new conditions.

Step-by-step explanation:

When cannabis legalization occurs, it is expected that both supply and demand for cannabis will increase. Consequently, the new post-legalization equilibrium quantity of cannabis would likely be greater than pre-legalization.

If we consider that supply and demand elasticities are similar and that the supply shifts out more than the demand, the post-legalization price is expected to be lower than the pre-legalization price.

This result is due to the increased quantity of goods available outpacing the demand, even though both have increased, thus placing downward pressure on the market price.

The concept of elasticity is critical in understanding how the quantity demanded or supplied of a product changes in response to price changes.

For items with inelastic demand, such as cigarettes for regular smokers, price increases do not significantly reduce the quantity demanded. However, for products with elastic demand, a price change can lead to substantial changes in the quantity bought or sold.