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Prices and Volumes in Illicit Markets, Theories of

  • By: Jonathan P. Caulkins & Dawn Holmes
  • In: Encyclopedia of Drug Policy
  • Edited by: Mark A. R. Kleiman & James E. Hawdon
  • Subject:Public Policy, Drug Crimes

Illegal drugs are consumer goods; they are produced, distributed, and sold through markets. Price, along with quantity, is a fundamental attribute of a market, so policy pays considerable attention to drug prices as well as to measures related to quantity, such as the prevalence and consequences of use. Price and quantity are jointly determined by the intersection of supply (willingness of dealers to provide the drugs) and demand (desire of users to consume the drug). Only by studying price and quantity together can one fully understand what is driving market changes over time.

Determinants of Drug Prices

Prices of illegal drugs are strikingly high, particularly in comparison to other semi-refined agricultural products such as tea, coffee, and tobacco. Drugs are not innately expensive to produce. Wholesale prices ...

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