In 2012, both Colorado and Washington citizens passed ballot measures allowing the production, sale and use of marijuana for recreational purposes. In both cases, the ballot measure authorized the legislatures to develop regulatory regimes, and to impose taxes to pay for the regulation. (Note: in Colorado, those taxes had to be approved by a vote of the people, and they were, in 2013.)

Use the microeconomic theory we have been studying to analyze the legal and illegal markets for marijuana in Colorado or Washington, specifically with regard to the following issues:

Will the legal market survive or thrive if the taxes cause prices to be higher than the blackmarket? In other words, is demand in the legal market price elastic, or price inelastic. Use elasticity theory to explain your determination. Remember, the law of demand says that when price rises, quantity demanded falls. Elasticity helps us to answer the next question, "how much."

In what market structure will the retail establishments operate (perfect competition, monopoly, monopolistic competition, oligopoly). Explain. To address this question, your will need to know a bit about the regulations that have been passed. The local newspapers (in Colorado, the Denver Post) have provided good coverage of the issue, both before the 2012 vote, and during the process of crafting the regulations. In Colorado, an election guide, called the Blue Book, also provided some good analysis of the tax measure. It can be found on the web site of the Colorado General Assembly.