Fentanyl Elasticity: Cutsinger’s Solution – Econlib

Question: Suppose the demand for fentanyl is perfectly inelastic, and that the users of fentanyl steal from others to acquire the money to pay for it. In an effort to crack down on fentanyl use, the government imposes harsher penalties on suppliers of fentanyl, reducing its supply. How will this policy affect the amount of stealing by fentanyl users?

Solution: Students sometimes resist the idea that the law of demand applies to addictive drugs. I understand why: if something is addictive, it seems like people will consume it no matter the price. While that isn’t strictly true, let’s follow the assumption in the question that demand for fentanyl is perfectly inelastic.

What does that mean? Perfectly inelastic demand means the quantity consumed does not change when the price changes. Graphically, the demand curve is a vertical line. Users consume the same amount regardless of price.

Now consider what happens when the government cracks down on suppliers. The reduced supply does not change the equilibrium quantity consumed, since demand is perfectly inelastic. Instead, it raises the market price of fentanyl.

Here’s the important step: because users continue to buy the same quantity but at a higher price, their total spending on fentanyl rises. Since they finance their purchases through theft, this means the amount of stealing increases.

A simple numerical example makes this clear. Suppose a user buys one unit of fentanyl each week at $100, stealing $100 to do so. If supply restrictions raise the price to $150, the user still consumes one unit per week but now must steal $150. Stealing rises one-for-one with the higher price.

So, when demand is perfectly inelastic, reducing supply does not lower consumption. Instead, it raises prices—and in this case, leads to more stealing. If the assumption of inelastic demand were true, a more effective policy would target reducing demand rather than supply.