Anecdotally, marijuana is a popular product. But it is not a product that is well understood from an economic perspective. What is the size of the marijuana industry? Is it a substitute or a complement for other drugs such as alcohol and tobacco? How sensitive is consumption to changes in its price? By how much would marijuana prices and consumption change if it were decriminalised further and/or legalised? How much tax revenue could be raised from marijuana? These are some of the major issues in the economic analysis of marijuana. In this book we consider in detail these and other economic dimensions of the marijuana industry, including:

• The nature of consumers of the product and how the consumption of marijuana and other drugs are interrelated.

• Intriguing patterns in prices, including quantity discounts, regional disparities in prices and the extent to which marijuana prices have fallen over time.

• The likely size of the industry.

• The price sensitivity of consumption of marijuana, cocaine, heroin, beer, wine, spirits and tobacco.

• The possible implications of decriminalising or legalising marijuana, including the amount of revenue that the government could raise by subjecting it to taxation in a manner similar to that for tobacco and alcohol.

Economic dimensions of marijuana

The marijuana industry is of interest to economists for several reasons. First, although official data are lacking, available estimates indicate that the industry is of substantial size. For example, approximately one-third of all Australians admit to having tried marijuana and a much larger proportion of young people have done so (see National Drug Strategy Household Survey, 2005, for details).