New Zealand's illicit drug market has had a major shake-up due to Covid-19 with a new report forecasting likely price increases and a drop in purity.
A post-Covid 19 drug landscape document, created by Drug Information and Alert NZ, found it was "almost certain" the changes in the country's illicit drug market would have wide-ranging social impacts.
It detailed how supply fall-offs for methamphetamine were basically a given, at least in the short-term, due to global supply chain and domestic travel difficulties.
The report said price increases for the drug were more or less guaranteed, and informal collections suggest wide-scale price increases had occurred across the board.
The effects of the reduction in the supply of methamphetamine on the New Zealand market are illustrated in the diagram below. The market was previously at equilibrium, where the demand D0 and supply S0 intersect, and where the equilibrium price was P0 and the equilibrium quantity of methamphetamine traded was Q0. Then, as a result of the coronavirus lockdown, the supply of drugs reduced to S1. The new equilibrium is where demand D0 and supply S1 intersect, where the equilibrium price has increased to P1, and the equilibrium quantity of methamphetamine traded has decreased to Q1.
You could argue that the demand for methamphetamine may have increased as well. If people have nothing better to do with their time, such as working, then perhaps they want to want to engage in some 'recreational activity'. The article notes this, in the case of MDMA:
One dealer, spoken to on the condition of anonymity, confirmed it had been harder for him to come by MDMA, but the calls appeared to be increasing.
"The demand is perhaps higher [compared to pre-lockdown], I think there's a culture in New Zealand where people are now almost abusing the substance."
In this case, the diagram below demonstrates the effect. Again starting from an equilibrium price of P0 and an equilibrium quantity of Q0, supply has decreased from S0 to S1, while demand has increased from D0 to D2. The new equilibrium is where demand D2 and supply S1 intersect, where the equilibrium price has increased to P2. The combined effect of the decrease in supply and increase on demand on the equilibrium quantity is ambiguous. In the diagram, it shows that the quantity has returned to Q0. However, if the shift in demand had been just a bit larger, then the equilibrium quantity would have increased. And, if the shift in supply had been just a bit larger, then the equilibrium quantity would have decreased. So, we can be sure that the equilibrium price of MDMA will have increased, but we cannot be sure about the change in equilibrium quantity.
Finally, this bit from the article is interesting:
Also noted was the risk of substituting drug types as certain products become harder to source in the short term, which could lead to more related harm as it said unfamiliarity with a substance can result in overdoses.
"If the illicit drug supply dwindles, dealers may seek to stretch their existing supply by using cutting agents. This poses a danger as people may not be aware of what they are actually using."
When the price of a good increases, sellers will want to sell more of it (what we refer to as the 'Law of Supply'). However, if sellers can't get more of the good to sell, then this appears to create an incentive to make their existing supplies stretch further, which drug sellers can achieve by cutting their drugs with something else. This is not a good situation for drug buyers, but unfortunately most buyers are not in a good position to judge the quality of the product they are buying. This problem of asymmetric information is an important point my ECONS102 class will come back to later in the paper.
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