What would happen to the price of marijuana in the following scenario?If marijuana is legalized in the US, what will happen to the quantity of marijuana (i.e purchased and sold )if the demand of...

What would happen to the price of marijuana in the following scenario?

If marijuana is legalized in the US, what will happen to the quantity of marijuana (i.e purchased and sold )if the demand of marijuana rises by more than the supply of marijuana falls?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

Your question really has nothing to do with marijuana.  The actual good being sold is not relevant.  All you need to do here is the supply and demand analysis.  So, what you are really asking here is what happens to the equilibrium price of a good if the demand for that good increases while supply falls.

Both an increase in demand and a decrease in supply will cause the price of the good to increase.  If there is both an increase in demand and a decrease in supply, the price is likely to rise a great deal.  Increases in demand cause prices to rise because more people are competing for a given amount of the good.  If the supply of the good falls at the same time, there will be more people competing for less of the good and the price will go up dramatically.

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