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Answer :
Final answer:
Medical cannabis has a less elastic demand than recreational cannabis because it has fewer substitutes, meaning that changes in price will have a smaller effect on the quantity sold of medical cannabis compared to recreational cannabis. The correct option is B.
Explanation:
The elasticity of demand is a measure of how much the quantity demanded of a good responds to a change in price. In the case of medical cannabis versus recreational cannabis, the demand for medical cannabis is considered to be less elastic because there are fewer substitutes for patients who need it for medical reasons. As such, even if the price increases, these patients will still likely need to purchase medical cannabis, resulting in a smaller change in quantity sold compared to recreational cannabis which has more substitutes and where users can more easily change their consumption habits in response to price changes.
This concept, ceteris paribus, implies that all other factors being equal, a change in price would have a bigger effect on the quantity sold of recreational cannabis than for medical cannabis. To illustrate this with an example from a related market, the demand for cigarettes is relatively inelastic, particularly among adults. If taxes increase, cigarette prices go up, and while tax revenue for the government may increase, the quantity of smoking changes only slightly. In contrast, substances with a more elastic demand will see a more significant change in quantity consumed when prices change.
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There will be a bigger effect on quantity sold for A. recreational cannabis than for medical cannabis.
Understanding the price elasticity of demand is crucial in distinguishing between medical and recreational cannabis.
Elasticity Defined: Price elasticity of demand measures how much the quantity demanded of a good responds to a change in its price. A product is considered elastic if the quantity demanded changes significantly with price changes, while it is inelastic if the quantity demanded changes little with price changes.
Medical vs. Recreational Cannabis:
- Medical Cannabis: This type has fewer substitutes because patients often rely on specific strains for medical conditions. This dependence creates inelastic demand; patients are willing to pay higher prices without significantly reducing their quantity demanded.
- Recreational Cannabis: This type typically has more substitutes, such as different strains or even different leisure activities. This leads to a more elastic demand, where price changes can significantly affect how much recreational cannabis people buy.
Implications of Elasticity:
- When the price of recreational cannabis increases, consumers can switch to substitutes, making them more price-sensitive.
- Conversely, when the price of medical cannabis increases, patients may continue purchasing their necessary medication, resulting in less change in quantity sold.
