The Economic Way of Thinking 13th Edition by David Prychitko, Peter Boettke, Paul Heyne

Exercise 3

The text argues that if an activity is known to be profitable, more people will go into that activity and the profits will disappear. Does that apply to the selling of cocaine?
(a) The costs of selling cocaine include the risk of being arrested and imprisoned. Why is a ten-year sentence not twice as strong a deterrent as a five-year sentence? Why does one chance in five of being imprisoned for ten years translate into less than two years' imprisonment? Is a cocaine seller likely to use a high or a low discount rate in deciding on the subjective cost of possible imprisonment? Why is the threat of imprisonment more effective in deterring some people than others?
(b) Another cost of selling is the risk of being killed by competitors. This cost will be much lower for some people than for others. Characterize a person for whom this cost will be relatively low. (c) For whom is the selling of cocaine profitable?