“In a certain city, the demand function for crack cocaine is q = 1,000 – p, where p is the street price. The cocaine industry is competitive. Cocaine distributors can buy as much cocaine as they wish at a price of $50 per unit from Colombian sources. Whenever the city narcotics police catch a cocaine dealer, they confiscate all the cocaine that he has. The jails are full so they do not imprison the dealers. The police are able to catch the dealers about half the time, so they get about half the cocaine that enters the city. Instead of destroying confiscated crack, the police simply resell it on the street.If the original supply curve of cocaine on the streets was horizontal, what is the net effect of police activities on the market for crack in this city?Calculate the value for p that prevails before police intervention in the market.Calculate the value for q that prevails before police intervention in the marketCalculate the value for p that will result from police intervention in the market.(Hint: Think about what the police intervention will do to existing sellers – how the intervention affect their revenues.)
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