There is a debate about whether sterile hypodermic needles should be passed out free of charge in cities with high drug use. Proponents argue that doing so will reduce the incidence of diseases, such as HIV/ AIDS, that are often spread by needle sharing among drug users. Opponents believe that doing so will encourage more drug use by reducing the risks of this behavior. As an economist asked to assess the policy, you must know the following: (i) how responsive the spread of diseases like HIV/AIDS is to the price of sterile needles and (ii) how responsive drug use is to the price of sterile needles. Assuming that you know these two things, use the concepts of price elasticity of demand for sterile needles and the cross-price elasticity between drugs and sterile needles to answer the following questions. a. In what circumstances do you believe this is a beneficial policy? b. In what circumstances do you believe this is a bad policy?

Step 1: High price elasticity of demand for sterile needles If people are highly responsive to the price change in sterile needles, the price elasticity of demand for sterile needles will be high (greater than 1). This implies that as the price of needles decreases (or becomes free), the demand for these needles will increase significantly. Step 2: Low cross-price elasticity between drugs and sterile needles The cross-price elasticity measures the responsiveness of the demand for one good to a change in the price of another good. If the cross-price elasticity between drugs and sterile needles is low, it means a change in the price of needles will not greatly impact the demand for drugs. People might not be encouraged to use more drugs if sterile needles are provided free of charge. Step 3: Determine if the policy is beneficial If the price elasticity of demand for sterile needles is high and the cross-price elasticity between drugs and sterile needles is low, providing sterile needles free of charge would likely be a beneficial policy, as the spread of diseases through needle-sharing would decrease without significantly impacting drug use.

Step 1: Low price elasticity of demand for sterile needles If people are not highly responsive to the price change in sterile needles, the price elasticity of demand for sterile needles will be low (less than 1). This implies that a decrease in the price of needles (or making them free) will not lead to a significant increase in the demand for these needles. Step 2: High cross-price elasticity between drugs and sterile needles If the cross-price elasticity between drugs and sterile needles is high, it means that a change in the price of needles will greatly impact the demand for drugs. People may be encouraged to use more drugs if sterile needles are provided free of charge. Step 3: Determine if the policy is not beneficial If the price elasticity of demand for sterile needles is low and the cross-price elasticity between drugs and sterile needles is high, providing sterile needles free of charge would likely be a bad policy, as the spread of diseases through needle-sharing may not decrease significantly, and drug use could even increase due to reduced needle costs.