The Law of Demand states there is an inverse relationship between price and the size of the market. All things being equal, fewer people will purchase a product if the cost to them rises. The corresponding Law of Supply states suppliers will push more goods into the market the higher the price. Thus in the latter case the relationship is direct all things being the same.
Macroeconomics is a battleground on which buyers and sellers, largely unconsciously jostle the actual price in the direction that benefits them best. The jumbo Law of Supply and Demand holds that the price point will be where supply and demand curves intersect in an open market thus.
Image Acknowledgement: Paweł Zdziarski: Free to Use under Creative Commons CC 3.0
This forms the basis of the proposition that prohibition keeps the price of substances higher. Suppliers have to go to costly lengths to avoid prosecution / defend criminal charges. Consumers, on the other hand have to tolerate the cost because they have little choice. That situation describes an abnormal market where the principles of open competition do not apply.
The Cannabis Law of Supply and Demand in Action
Keith Humphreys, writing for Washington Post draws attention to an interesting theorem. Legalizing marijuana is an unusual opportunity to observe price shifts as a market dramatically normalizes. Numbers released by the Washington State Liquor and Cannabis Board reveal a fifty-eight percent drop in the price of legal marijuana in the past eighteen months. The price has actually fallen every quarter since legalization in July 2014.
We shall have to wait a little longer before we see similar trends in California. Our prices too have been artificially high due to historic Federal fiddling with free market principles. Certainly, production costs should be lower despite higher quality standards. Surely, purchases will increase in response thereto.
What this Means for Marijuana Farmers and Retailers
This does not however mean that the quality of pot will deteriorate to bargain basement levels. Open market forces will drive a hierarchy of products with differential prices. Yes, there will be basic stuff for people who want adequate for the lowest possible cost. Correspondingly, there will be consumers willing to pay most at auctions for rare vintages and cultivars.
The rest of us will probably be somewhere in the middle, experimenting with different brands and taking up special offers. We will vote without feet when the quality / price ratio does not add up for us individually. This is how American business works. We do not suppose California cannabis should be any different, once the new programs are in place.