Answer to Question #295942 in Microeconomics for Bluelemon

Question

Draw a graph showing how marijuana legalization might affect the supply and demand curves in the market for beer in Washington and explain why you think such changes to the beer market would happen.

Answer 1

With the legalization of marijuana, Since marijuana and alcohol are substitutes, an increase in the Quantity produced of Marijuana will cause a reduction in the quantity demanded for Alcohol. Like in diagram below, when quantity produced of Marijuana rises from 300 to 600, the quantity of Alcohol demanded drops from 4 to 2.6. Also the supply curve shifts from S1 to S2 so as to meet the new demand.