1. Did you watch the Superbowl? 1.Yes, the whole thing. 2.Part of it. 3.No

2. If the police confiscate drugs and resell them at market price, with no other punishment for sellers or buyers, the outcome is the same as if they didn’t confiscate at all. 1.True 2.False

3. Why is that? The confiscations push the supply curve upwards. This results in a higher equilibrium price and lower consumption. If you don’t see how this works, think about the comparison between sessions 2 and 3 of our experiment.

4. A credible education program about negative health effects of a drug would 1.Shift the supply curve up. 2.Shift the demand curve up. 3.Shift the demand curve down. 4.Shift the supply curve down.

5. Why is that? Increased penalties shift the supply curve up. Equilibrium moves to a new point on the demand curve with higher price and quantity. If demand is inelastic, then percentage reduction is quantity is smaller than percentage increase in price. Expenditures =Price x Quantity increases.

6. If the demand for heroin is inelastic, increased penalties for heroin would cause total expenditures on heroin to 1.Rise 2.Fall 3.It could rise or fall depending on whether the supply curve is inelastic or elastic.

7. And on to our lecture…