True or False?
The correct answer is false. If there were no consumption externalities true would be the correct answer. Consumers of marijuana would gain the area under the demand curve, given that the price is zero. The problem is that, unlike potatoes and running shoes, marijuana is a commodity that some strongly think is bad for people to consume. They benefit from knowing that other people are not harming themselves by consuming it. Because of their concern, they can make themselves better off by prohibiting others from consuming the drug. The loss of the area under the demand curve to marijuana smokers who are prohibited from using the drug may therefore be offset by a gain to other people from knowing that people are not harming themselves. Of course, the weighting of the gains to the potential consumers of marijuana and the potential losses to those who do not want to see it consumed is a matter of social choice that is beyond the scope of economic analysis, which can deal only with questions as to who gains and who loses under the range of possible policy actions.