Suppose marijuana has just been legalized in your state. Nobody in your home town wants to start a marijuana business, as this would be too much of a stigma. But being an MBA student, you know a good business opportunity when you see one and decide to take a stab. Shortly after starting up your business, you gain a loyal following of customers and start raking in some steep profits. 

However, the local government decides that they want a cut of your profits and starts charging a 20% sales tax on marijuana. Do you think this would lead to a 20% or greater loss in sales? Do you think marijuana in this situation would be facing inelastic or elastic demand? 

Explain your reasoning, and make sure to cite at least one of the required readings regarding elasticity.

Answer rating: 100% (QA)

Marijuana is legalized but for its medicinal and healthcare uses It is not utilized for its ... View the full answer