Illegal Markets

Illegal Markets - Homework # 1 Income elasticity = % Q/ % P...

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Homework # 1 Income elasticity = % Q/ % I = (Q2-Q1)/ (Q2+Q1)*1/2 / (I2-I1)/ (I2+I1)* ½ = some number P x Q d = 1/3 x I Q d = 1/3p x I Ray and Tom - One wants $10 of gas (expenditure) - The other wants 10 gallons E = % Q/ % P - First Guy E = 0 - His quantity never changes… only price Illegal Markets - Property rights don’t apply in illegal markets - But there are still gains from trade *Chart - What are the effects of criminal activities? Quantity declines, and price rises - Who is still providing the illegal goods? ( people who have a comparative advantage at doing illegal things) - Past criminal history? - People willing to take risks associate with violence - Decreasing returns to investment in enforcement o Ex. In the 90’s – US spent $2billion/ year to stop cocaine imports o Effect on price: + 4% o *Chart o Another 2% increase would cost another $1billion/ year The US currently taxes alcohol bases upon alcohol content.
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- What would happen to the demand for beer/ liquor if the government taxed only volume?
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Illegal Markets - Homework # 1 Income elasticity = % Q/ % P...

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