An addict's demand function for a drug may be very inelastic, but the market demand function mig

step 1 Looking at a price elastic demand curve for casual users of drugs. So in this case, these are pe

An addict's demand function for a drug may be very...

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Key Concepts

Aggregation of Individual Demand

While an individual addict's demand may be highly inelastic due to the compulsion to consume, the market demand function is an aggregation of many individual demand curves. This aggregation can result in a more elastic overall response if it includes consumers who are more price-sensitive, such as occasional or non-addicted users.

Extensive Margin of Demand

The extensive margin refers to the decision of consumers whether to participate in the market at all. In the case of drugs, a small price change might lead non-addicted users to opt out of the market entirely, thereby making the overall market demand more elastic, even though the intensive margin (the quantity consumed by active users) is inelastic.

Price Elasticity of Demand

Price elasticity of demand measures how sensitive the quantity demanded of a good is to a change in its price. A highly inelastic demand indicates that quantity demanded changes very little as price changes, which is often observed in addictive behaviors where consumption is not easily reduced despite price increases.

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