me: >>this is one of those cases -- ignored by the econ. textbooks, natch -- in which monopoly can be better than a competitive market. After all, monopoly prices discourage people from using meth. <<
Yoshie: >According to standard economics, once prices go up too much, then the demand goes down, bringing down the prices eventually. Is there an equilibrium price in the drug market? <
again in standard lingo, it's not demand that falls but the amount demanded.
But that's not what's key. There is an equilibrium, where the amount demanded equals that supplied, but it would be always changing. It would move like an electron (somewhat randomly) in an orbit around the long-run equilibrium. The equlibrium price would be above the price of production, which reflects the cost of product, plus the "normal" profit needed to keep drug-pushing entrepreneurs in the "industry" (with the normal profit rate = Marx's societal average profit rate). It would be a monopoly price reflecting the various barriers that the government puts in the way of entering and staying in the industry...
-- Jim Devine "The price one pays for pursuing any profession or calling is an intimate knowledge of its ugly side." -- James Baldwin
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