Abstract
The tools of economic analysis can be applied to the buying and selling of any illegal commodity and they may be able to highlight some errors in social policy. In this article the demand and supply conditions of three illegal drug industries are analyzed, as well as the organizing principles of the industries, the degree of monopoly or of competition, and the principal sales techniques. The fact of addiction leads to a condition known as price-inelastic demand for heroin and nicotine, but not for marijuana, which is non-addictive. This means that total spending will increase as sales decrease when price rises. Price rises due to high sales taxes have created a flourishing criminal nicotine industry and price rises due to vigorous law enforcement have created the conditions for criminal monopolies in the heroin industries. Moreover, both nicotine and heroin sellers have used similar merchandising techniques because of the nature of the addiction involved. The demand conditions also make a policy of vigorous enforcement of the laws against marijuana, leading to an increase in the price of marijuana, a potentially dangerous social policy.
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