Arguments for Making a Good Illegal People have limited information about the good, are not capable of making a good decision about the good or the good is addictive and one-time users can not learn from their mistake. There are externalities, effects of a transaction that hurt or help people who are not a part of that transaction, involved in the production or consumption of the good. The good is immoral.

Preventing Bad Decisions Economists are typically reluctant to assume that people can not make good decisions. Drugs tend to be an exception to this rule because they are addictive.

Modeling Externalities S Marginal Cost D (Marginal Benefit) Q* P* P The Offending Good 0 Social Cost External Cost Q’ P’

Examining the Externalities Tobacco accounts for approximately $1 per pack in costs incurred by taxpayers and nonsmokers. Medicare, Medicaid, Asthma, Drunk Driving accounts for 32% of the 31,000 traffic accidents that cause 33,808 deaths 24% of all violent crimes (30% for rapes) are committed while the perpetrator is on drugs. 55% of inmates in jail, detention, or prison used drugs during the month leading up to their arrest.

Battling Negative Externalities While Creating Others Much of the drug violence that exists, only exists because of laws criminalizing drug use. If cocaine, methamphetamine, and marijuana were legal and inexpensive, there would be less of a need for addicts to rob in order to get money to buy them. there would be no drive-by shootings to protect turf.

Using Taxes to Correct for Externalities S Marginal Cost D (Marginal Benefit) Q* P* P Tobacco/Alcohol 0 Social Cost=S+tax External Cost=tax Q’ P’