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SUMMER SCHOOL 3: Profit & Cocaine

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SUMMER SCHOOL 3: Profit & Cocaine

SUMMER SCHOOL 3: Profit & Cocaine

SUMMER SCHOOL 3: Profit & Cocaine

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  • <iframe src="https://www.npr.org/player/embed/894368822/894465865" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript

Artwork by Therrious Davis Therrious Davis for NPR hide caption

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Therrious Davis for NPR

Artwork by Therrious Davis

Therrious Davis for NPR

Now that you understand supply and demand and markets, let's put that knowledge to the test. We go out on the streets of Los Angeles to learn about the crack cocaine trade from a man who learned economics the hard way: Freeway Ricky Ross.

Freeway Rick became the equivalent of a CEO in the drug business, mastering the art of pricing and competitive advantage. He did it all without learning to read or write.

After we hear Freeway Rick's story, we bring in our resident economists, Justin Wolfers and Betsey Stevenson from the University of Michigan, and they show us that the lessons from Freeway Rick apply to all businesses. First, find a product with no substitutes where you have control over the price. Second, keep out competitors. Freeway Rick used guns, but lawyers and lobbyists are just as effective at creating a barrier to entry.

Concepts:

  • Elastic demand
  • Inelastic demand
  • Drug legalization
  • Barriers to entry

Assignment:

  • What are some products with inelastic prices that we haven't thought of? And why does that product have that sort of demand? Are there no substitutes or has a business just figured out how to reduce competition? Tell us about it. #PMSummerSchool

Music: "Cash Money," "Lost Situation" and "Hail The King."

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