Question

As part of scoping work for setting up a nationwide chain of de-addiction and rehabilitation centers, you have been trying to develop a better understanding of the problem of drug use in the United States. During this process, you have become interested in what the impact would be if authorities could be more effective at getting drugs off the streets. The DEA has estimated the following data: - Elasticity of Demand for Cocaine: -0.55 - Elasticity of Supply: 1.0 Suppose there is a major crackdown on drug dealers, during which the DEA is able to seize 100M grams of cocaine and take it off the market. What will happen to the equilibrium price and quantity?

          As part of scoping work for setting up a nationwide chain of de-addiction and rehabilitation centers, you have been trying to develop a better understanding of the problem of drug use in the United States. During this process, you have become interested in what the impact would be if authorities could be more effective at getting drugs off the streets. The DEA has estimated the following data: 
- Elasticity of Demand for Cocaine: -0.55 
- Elasticity of Supply: 1.0

Suppose there is a major crackdown on drug dealers, during which the DEA is able to seize 100M grams of cocaine and take it off the market. What will happen to the equilibrium price and quantity?

Added by Lindsay J.

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