What is the percent increase in quantity demanded? ### Transcription of Text on Legalization Debate**29.** An ongoing policy debate concerns whether to legalize the use of drugs such as marijuana and cocaine. Some researchers estimate that legalizing cocaine would cause its price to fall by as much as 95 percent. Proponents of legalization argue that legalizing drug use would lower crime rates by eliminating the main reason for the murderous gang wars that plague many big cities and by reducing the incentive for drug addicts to commit robberies and burglaries.Opponents of legalization argue that lower drug prices would lead more people to use drugs.a) Suppose the price elasticity of demand for cocaine is -2. If legalization causes the price of cocaine to fall by 95 percent, what will be the percentage increase in the quantity of cocaine demanded?b) If the price elasticity is -0.02, what will be the percentage increase in the quantity demanded?---### Explanation**Concepts Discussed:**- **Price Elasticity of Demand:** This measures the responsiveness of the quantity demanded of a good to a change in its price. It is usually a negative value because price and quantity demanded typically move in opposite directions.- **Proponents' Argument:** They claim that legalization could reduce crime by removing the black market for drugs, which is often associated with violence and crime.- **Opponents' Argument:** They suggest that lowering prices could increase drug usage rates.**Mathematical Exploration:**1. **For Part (a):** - The price elasticity of demand is given as -2. - Formula used: \[ \text{Percentage Change in Quantity Demanded} = \text{Price Elasticity} \times \text{Percentage Change in Price} \] - With a 95% price decrease, it would be: \[ -2 \times (-95\%) = 190\% \] - Therefore, the quantity demanded is expected to increase by 190%.2. **For Part (b):** - The price elasticity of demand is -0.02. - With the same formula and 95% price decrease: \[ -0.02 \times (-95\%) = 1.9\% \] - Therefore, the quantity demanded is expected to increase by 1.9%.

Price elasticity of demand depicts how much consumer respond with the change in price.

29. An ongoing policy debate concerns whether to legalize the use of drugs such as marijuana and cocaine. Some researchers estimate that legalizing cocaine would cause its price to fall by as much as 95 percent. Proponents of legalization argue that legalizing drug use would lower crime rates by eliminating the main reason for the murderous gang wars that plague many big cities and by reducing the incentive for drug addicts to commit robberies and burglaries. Opponents of legalization argue that lower drug prices would lead more people to use drugs. a) Suppose the price elasticity of demand for cocaine is -2. If legalization causes the price of cocaine to fall by 95 percent, what will be the percentage increase in the quantity of cocaine demanded? b) If the price elasticity is -0.02, what will be the percentage increase in the quantity demanded?

29. An ongoing policy debate concerns whether to legalize the use of drugs such as marijuana and cocaine. Some researchers estimate that legalizing cocaine would cause its price to fall by as much as 95 percent. Proponents of legalization argue that legalizing drug use would lower crime rates by eliminating the main reason for the murderous gang wars that plague many big cities and by reducing the incentive for drug addicts to commit robberies and burglaries. Opponents of legalization argue that lower drug prices would lead more people to use drugs. a) Suppose the price elasticity of demand for cocaine is -2. If legalization causes the price of cocaine to fall by 95 percent, what will be the percentage increase in the quantity of cocaine demanded? b) If the price elasticity is -0.02, what will be the percentage increase in the quantity demanded?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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