Marijuana consists of leaves of a
cannabis plant and is digested by either smoking hand rolled cigarettes, known
as joints, or in pipes, known as bongs. The market of marijuana use is an ideal
example of market failure. Market failure is when the distribution of products
that are bought or sold, or services in a market is inefficient. The use of
marijuana is a negative externality brought on by consumption. A negative
externality means that the action of the good or service forces a negative
effect on the third party. In this case, the third party would be the people
around the marijuana smokers. It is commonly known that if you inhale second
hand smoke from a marijuana smoker, you are likely to get high. Also, if people
are smoking marijuana illegally and happen to get caught, everyone in the area
has a high chance of being arrested.
This article, taken from the Los
Angeles Times official website, talks about a tax being charged on cannabis
leaves, marijuana that can be smoked and medical marijuana, which has been legal
in California for about twenty years. In California, the price for marijuana is
$35, but, in 2018, the price will increase to $50 or $60 due to a tax being charged.
A tax is an amount of money forced on people by the government on a good or
service. This tax causes a huge 70% jump. These taxes could influence where the
marijuana is grown.
The diagram above shows the
relationship between the increase in price of marijuana and the amount
demanded. The market is in equilibrium, with Qe being supplied and demanded at
price Pe. After the tax of XY per unit is imposed, the supply curve shifts
vertically upwards from S to S + tax. Equilibrium is defined as a state of
rest. As the price increased, the quantity demanded decreased as some consumers
are unable to purchase marijuana at such a high price. Quantity demanded is the
amount of the product or service people want. The blue rectangle in the diagram
shows the tax revenue for the government. A revenue is the income that a firm receives
from taxes by selling its products, goods, and services, over a certain period
of time. In this case, the firm is the government who set the tax.
Cannabis leaves cost $50, when the
tax is charged, a pound of leaves will cost $44. This means, to buy seven or
eight pounds of cannabis leaves, the consumer, who is the person that uses a
product or service, will pay five or six times more than the original price
before the tax was forced on people. The Los Angeles Times article also states
that the government will charge taxes on the growing of the cannabis plant too.
This tax will differ city to city and county to county. In San Francisco, a
square foot of land to grow cannabis, will cost $25, whereas in other places
such as Humboldt County, the growing space will differ between $1 and $3.
Higher taxes for consumers will
lead to a successfully growing illegal market for marijuana. Since the price
for legal marijuana will increase by 70%, the illegal marijuana market will
either decrease their prices or keep them the same. This will increase the
consumption of illegal marijuana as consumers will most definitely go for the
In my opinion, I believe imposing taxes
on marijuana is a pointless exercise. This is because there will always be
marijuana consumers who will find a way to buy weed even if it means purchasing
it illegally, as long as it is cheap. This will drive producers, who is the
person who supplies the product or service, to starting an illegal marijuana market
which would benefit marijuana smokers as they get what they want, and at a
cheap price. Most drug users are people who have lost their jobs because of
their drug consumptions and they need marijuana because they use it daily. The
only consequences to having an illegal marijuana market is the risk of getting
caught and being arrested as well as, sometimes death from too much weed. I
believe that the government who is taxing them should offer an incentive based
system whereby the consumers and the producers benefit from paying the tax, for
example, a tax-free rebate on some part of their salary.