Price Equilibrium

Demand Elasticity

Price Response to Changes in Supply

It has long been a running joke that someone who pays $20.00 for a gram of marijuana is new to the market; but does an analysis of this phenomenon, as well as other observations about market forces at play indicate some conclusions about the illegitimacy of statist claims about the black market?  Why is $20.00 for a gram such a laughable price for a substance that is federally—and often locally—prohibited?  The short answer is that while this substance and its distribution exist in the black market, also known as under state prohibition, it does not exist in red market: the set of transactions that is both state-prohibited and immoral.  The state would like to have people believe that these two markets are indistinct: they would like the populace to believe that anything they prohibit must also be immoral because it was prohibited by a legitimate entity (themselves).  The market for marijuana—this article will focus on the Louisville market (where it is still locally banned)—exhibits characteristics that weaken this argument, though.  For a substance that supposedly has no morally justified medical or recreational use, the underground market for weed sure does exhibit typical phenomenon associated with free market incentives. The most evident attribute of a stable market is an equilibrium price and quantity.  If there is evidence of a long-term equilibrium, then there is strong reason to believe that predictable and normal supply and demand forces are present.  Equilibrium quantity may be very difficult to asses in a black market, but an equilibrium price is not so hard to discover.  In fact, when asked the question of “How much would you sell a normal gram for?”,  two dealers* that I interviewed separately both said ten dollars, though both said they would charge more for someone new to the market.  I also interviewed a consumer who said he would never pay more than $10.00 for an average quality gram.  When asked if they would sell/buy for $5 more or less, all interviewed said only if there was a significant change in quality.  The consumer I interviewed reported that, “If I’m getting weed for $5, it’s probably… shit weed.”  This commonly agreed upon price is an example of price equilibrium.  If the selling and usage of marijuana was as chaotic as the government believes it is, then this common price, agreed upon by producer and consumers outside of transition, would be incredibly unlikely. Not only is this price of $10.00 common place, but it is also apparently fixed, ceteris paribus.  If a dealer wanted to sell a gram for more than $10.00 under normal supply and demand, then it would have to be “gas” (also known as above-average quality) as one producer puts it.  This means that a gram of average weed has almost perfect demand elasticity.  Assuming people are even a little naturally inclined for morality, the state’s argument that whatever it prohibits is also immoral is significantly weakened by this phenomenon.  If a state-ban also imparted immorality, then people would only buy/sell/use marijuana in desperation or if they were the type of people to regularly disregard morality and ethics.  However, desperate demand formulates itself as inelasticity, the exact opposite of what we see in the black market for pot.