Party pills (updated)

Daniel Hamermesh is blogging on the ban on party pills that will come onto force in New Zealand on April 1 on the Freakonomics blog. When thinking about the affects on the supply of and demand for pills he writes,

Sellers need to unload their soon-to-be-illegal stocks of the pills, and the short-run increase in supply that results will drive prices down. But pill consumers, knowing the price will eventually rise, will want to buy now when the pills are still available, causing a short-run increase in demand.

I agree about the increase in supply but the demand side looks more complicated. There is a own-price effect. As supply increases the price drops and the quantity demanded increases. But there is also a future price effect. If people think the future price will be higher then the future quantity demanded will be less and as current consumption is relatively cheaper current demand increases. The current demand curve is parameterised by the future price. If people do not want to consume the pills when they are illegal they will decrease their future demand but in so far as legal current consumption is a substitute for illegal future consumption, current demand increases. It could also be, as Hamermesh seems to want to suggest, that if you think there will be no supply in the future, you increase demand now, while the pills are still available. Another factor in the increased demand could be "speculators" who are willing to take the risks of selling when the pills are illegal buying now as they are cheap, to sell later when they are dearer.

An interesting question is what will happen to the profits of those who are willing to supply when the pills are illegal?

Here's one factor I'm sure Hamermesh hasn't thought of. Kiwiblog alerts us to this NZPA story,

Wellington, March 20 NZPA - Moves by young ACT supporters to boost membership by selling cut-price party pills are "grossly irresponsible", Associate Health Minister Jim Anderton says.

The group ACT on Campus sold the pills last month for $1 each to Auckland University students who joined their organisation.

Party pills will be illegal from April 1, after legislation classifying them as a class C1 drug was passed this month. ACT, the Green and Maori parties voted against the legislation.

But ACT on Campus Auckland president Ben Smith said the pills were still legal and there was nothing wrong with the successful promotion, which had signed up 500 people.

But Mr Anderton, who is the minister in charge of the Government’s drugs policy, told NZPA the promotion was grossly irresponsible and ACT needed to rein in its youth wing.

Update: Not PC is up set because "Libz on Campus hadn't thought of it first".