Answer to Question #132686 in Microeconomics for Anas Ali Khan

Question

: The U.S. government’s “war on drugs” mainly focuses on restricting supply. This drives up prices
and reduces quantity demanded. However, demand for many drugs is price inelastic. That means quantity
demanded does not drop as much as the price rises. The net effect is higher total revenue to drug
producers. Illustrate the said scenario in a graph.

Answer 1

In the diagram below,

reduction in supply of drugs results to the supply curve shifting to the left. This leads to a higher price and fall in quantity demanded. As a result the revenue to the suppliers will increase.