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Alexander Hansen

13410652

BU1903

Assessment 2:
Legalisation of Marijuana California, the United States
Alexander Hansen

13410652

James Cook University, Singapore

BU1903: Economics for Sustainable Business

28th April 2017

1

Alexander Hansen

13410652

BU1903

“Fiscal Impact: Additional tax revenues ranging from high hundreds of millions of
dollars to over $1 billion annually, mostly dedicated to specific purposes”

INTRODUCTION

Fiscal Policy definition: refers to the government’s choices regarding the
overall level of government purchases and taxes
...
In 2016,
America’s Fiscal deficit reached $587 billion
...

Marijuana has been used for centuries as a substance that can cause euphoria
to individuals
...

In 1996, California voters approved proposition 215, the first legislation
legalising marijuana for medical purposes at the state level
...
“California is the world’s sixth largest economy, only outpaced
by the US (as a whole), China, Japan, Germany, and the UK
...
46 trillion
...
With this
economic status, the government in the United States can utilise California’s large
productive economy in a fiscal manner to increase their tax receipts through the
legalisation of marijuana
...


2

Alexander Hansen

13410652

BU1903

How will Legalisation likely impact supply and demand of
marijuana in California?

Before the emergence of legalising marijuana, it was a prevalent case where
marijuana would have been smuggled or sold through a series of criminal offences
...

Suppliers were the criminals, the people who would be manipulating prices of
the good due to its power in scarcity and risk of getting caught
...

The legalisation of marijuana has resulted to a dramatic rise in demand for the
product
...
In many ways, this has attracted
foreigners to travel there to have a taste of the product – where it is illegal in most
other nations in the world
...
With the expected $1billion in tax revenue, firms will be
attracted to this market and therefore making the industry a competitive market,
driving up the quality and efficiency of the production of marijuana
...
The Price of the marijuana would also fall
due to ceterus paribus where Demand is inversely related to Price
...


3

Alexander Hansen

13410652

BU1903

Supply and Demand Curve:
Price
S non-legal

S1
EQP
EQP2

D1

D Non-legal

EQQ

4

EQQ1

Quantity

Alexander Hansen

13410652

BU1903

To what extent will a tax imposed on the consumption of marijuana
enable the California state government to collect a large amount of
tax revenue?

Elasticity of demand measures the responsiveness of quantity demanded to a
change in price
...
, 2016)
...


Tax Revenue after legalisation of Marijuana:
Price
S

Tax Revenue

Tax Revenue
DElastic

DInelastic

Q3

Q2

Q1

Quantity

The graph above represents the effects of government taxation on marijuana
...
This is because a change in the price of the
good does not result in a larger change in demand
...


5

Alexander Hansen

13410652

BU1903

How might the introduction of recreational marijuana impact tax
revenues from tobacco? Is Proposition 64’s intended Fiscal impact
realistic?

Marijuana markets share some common characteristics with other intoxicating
products such as alcohol and cigarettes
...
(Harm Reduct J, 2009)
Marijuana and tobacco share some key traits; however, they are not direct
substitutes from one another as they both have different effects
...

Due to the obvious similarities that the two products share, this means that
marijuana is a rival product
...
This therefore results in a more competitive market for
intoxicating drugs (alcohol, marijuana, tobacco), which benefits consumers with price
wars and better quality of products
...

The tobacco industry in California has already been falling with the rate dropping
by more than 50% between 1988 and 2014
...
Proposition 64
allows adults ages 21 and over to grow, buy and possess lesser amounts of marijuana
for personal use
...
Blunts contain both nicotine and marijuana, and once young
adults start smoking a product they may believe it is okay to smoke another one
(Anna Gorman, 2016)
...


6

Alexander Hansen

13410652

BU1903

Conclusion

In conclusion, the projected Fiscal impact of $1 billion is a reasonable estimation and
a big benefit to the legalisation of marijuana
...
Marijuana industries have the potential to grow
exponentially along with the tobacco and alcohol industry, targeting the same consumers
...


7

Alexander Hansen

13410652

BU1903

References
Anna Gorman
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Will Legal Marijuana Lead To More People Smoking Tobacco? In A
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org
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(2016, November 9)
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Retrieved from Business Insider:
http://www
...
sg/marijuana-california-weed-legal-economy-201611/?r=US&IR=T#O3PVIX5pmVJhMGWx
...
(2016)
...
In T
...
446)
...

Chaiechi, T
...
Price Elasticity of Demand
...
Chaiechi, Economics for sustainable business (p
...
Melbourne: CENGAGE Learning
...
(2009)
...
In H
...
J, Cannabis as a
substitute for alcohol and other drugs (p
...
online

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