1. Free Slides from Ed Dolan’s Econ Blog http://dolanecon. blogspot
Free Slides from Ed Dolan’s Econ Blog Afghan Opium Blight: Strategic Implications of Elasticity Posting prepared May 13, 2010
Terms of Use: You are free to use these slides as a resource for your economics classes together with whatever textbook you are using. If you like the slides, you may also want to take a look at my textbook, Introduction to Economics, from BVT Publishers. Check it out at

2. Blight Strikes Afghan Opium Crop
In 2010, a blight has hit the Afghan opium poppy crop (and possibly the crop in other Asian countries)
Since opium is an important source of revenue for the Taliban insurgency, the blight might at first seem helpful to the Afghan government and its NATO allies
However, economic analysis suggests that the blight may be a mixed blessing
Opium Poppies
Source: PDClipart.com
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3. Elasticity of Demand for Opium
We can start by using the midpoint formula to calculate the approximate elasticity of demand for opium
The UN estimates that the blight has reduced the 2010 opium crop by 33% and driven up prices by 57%
Using an index of 100 for the base-year value of price and quantity, this implies an approximate elasticity of demand of -.89 (inelastic demand)
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4. Effect of the Blight on Revenue
When demand is inelastic, a decrease in quantity causes total revenue to increase
Example: A farmer who earned $10,000 in 2009 growing 100 kilos of opium at $100 a kilo would earn $10,519 in 2010 by growing 67 kilos at $157 a kilo
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5. Who Holds the Opium Stocks?
In reality, most of the increased revenue may not go to farmers, but instead to Taliban middlemen, who are believed to hold large stocks of previously produced opium
On balance, then, the effects of the reduced opium crop work against the strategic interests of NATO forces fighting the Taliban
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6. The Law of Unintended Consequences
Early in the Afghan war, NATO troops used chemical sprays to try to eradicate poppy crops
The results:
A sharp spike in poppy prices, similar to that caused by the blight
An increase, not a decrease in funds available to the Taliban
Anger among farmers, who lost their crops while middlemen earned windfall profits on opium stocks
Having learned a lesson from the law of unintended consequences, NATO has abandoned eradication
The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that pol­icy not merely for one group but for all groups.
—Henry Hazlitt
Economics in
One Lesson (1946)
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