Government Regulations in a New Market - Research Paper Example

Government regulations in a new market Macro economic theories Voters in Colorado and Washington DC had to approve initiatives to legalize the use ofweed in each respective state. The law bans the use of marijuana in the society because it has negative effects to the society. The law does not prohibit the Residents of Washington D.C who have medical prescriptions to grow the drug. The individuals must be 21 years of age to enjoy the benefits of using the drug. Legalizing marijuana creates a new market for the recreational drug.

Benefit and cost analysis explains the dynamics of the market for marijuana. Marijuana causes individuals cause criticisms from most societies and it indicates that it has a different demand and supply. Evidence indicates that once marijuana becomes a legal drug there will be an increase in the consumption of marijuana. Legalization of marijuana will result to a variety of marijuana products in the society. The forces of demand and supply control the prices of goods and services. Microeconomic involves the study of people and the decisions of businesses in an economy.

The decisions regard the allocation of scarce resources to the unlimited wants of humans. Microeconomics concentrates on the supply and demand of goods in the economy (Frank & Bernanke, 2004). Microeconomics focuses on how a particular company can maximize profits while experiencing low costs. It deals with how firms can maximize their profits. In this, case the demand increases when the prices of the commodity goes down. Legalizing marijuana will impose taxes on the product and prices will go up.

The prices of marijuana will increase, it will affect the demand of the product will fall. Supply of marijuana at this moment will increase because suppliers hope to maximize their profits. The demand for marijuana in the legal market is price elastic. It means that a small change in the quantities demanded of marijuana will cause a larger change in the quantities demanded (Frank & Bernanke, 2004). It is because marijuana is illegal among most countries and states in the United States. There are products that replace marijuana as substitutes and a small change in the prices of marijuana causes a relatively large change in demand.

The government plays an important part in allocating resources in the society. It may choose to intervene by influencing the price of the commodity through policies. The interest of the government is to improve the economic well being of individuals (Sowell, 2007). The government plays an important role in distributing delicate resources such as marijuana. The main reason why the government intervenes a market to correct its failure, achieve unbiased distribution of income and wealth (Mankiw, 2012).

In addition to, the government improves the performance of the economy by intervening. The government has no option but to regulate the industry of marijuana. In most urban centers, the law prohibits the use of marijuana. The only exception is for medicinal purposes because it is also a drug. The economy of a country works to reduce the use of drugs by individuals. The government must regulate the prices marijuana because it is a delicate resource. In the case where there is no intervention from the government, suppliers of marijuana would take advantage.

It would result in an increase in the use of marijuana in the society. The prices of marijuana will drop and the demand of the product will increase. Economic theories base their assumptions on the environment, human behavior, and institutions. The degree to which he government intervene in the economy depends on the product in the market (Frank & Bernanke, 2004). The government alters the law of demand and supply to control the prices of goods and services in the economy. Imposing of various policies ensures that the government regulates the prices if delicate products.

The government imposes indirect taxes to increase the prices of commodities in the community. It does this to increase the opportunity cost of goods with negative externalities. Raising the price of goods with negative attributes towards the society increases the opportunity cost of using them. The demand of the products reduces to a socially optimum level. The government passes various laws and policies to help improve information in a market (Besanko, Braeutigam & Gibbs, 2011). It plays an active role in improving information that will help the consumers and producers.

It includes laws such placing nutritional information on the food products. It educates individuals on the quantities of food they consume to reduce obesity in the society. The intention of the government is not to influence market prices but to change demand of the products in the end. Market failure means that a certain market is not allocating goods and services efficiently. The market structure suitable for the supply of medicinal marijuana is monopoly. In his scenario, a single buyer has control over the prices and output of the commodities.

Firms operating under monopoly market structure have the opportunity to set their own prices (Besanko, Braeutigam & Gibbs, 2011). The government takes control of the supply of marijuana. Marijuana supply in the economy is fragile and can have devastating impacts to the economy. The government should take a monopoly control of the supply of marijuana in the economy. A restriction of entry from other firms is crucial to create single supplier to the product. The government controls the supply of marijuana because it has negatives social implications.

Controlling the supply of marijuana by the government helps the society maintain their social standards. References Besanko, D., Braeutigam, R., & Gibbs, M. (2011). Microeconomics. Hoboken, NJ: John Wiley. Frank, R., & Bernanke, B. (2004). Principles of economics. Boston, Mass.: McGraw-Hill. Mankiw, N. (2012). Principles of economics. Mason, OH: South-Western Cengage Learning. Sowell, T. (2007). Basic economics. New York: Basic Books.