ECONOMICS 101 - WITH A MARY JANE TWIST

Marijuana dispensaries' race to the marketplace, such as the rush to a
stretch of Michigan Avenue, offers a glimpse at how market forces such
as supply and demand, market saturation and the effect of government
regulation shape the business landscape.

Consider it Economics 101 with a Mary Jane twist.

"This is not just interesting to nerdy economists, but others, too,"
said Charles Ballard, a Michigan State University economics professor.

New products are introduced to the marketplace all the time, Ballard
said. Consider those made possible by technology that didn't exist a
decade or two ago, such as MP3 players and cell phones. What makes
medical marijuana unique is that the product already existed, but has
just recently become legal in Michigan.

The federal government still considers the growing, sale and use of
marijuana a crime.

Of course, the drug had been bought and sold long before the 2008
voter referendum. But those transactions were carried out in alleys
and back rooms, far from the prying eyes of economists.

Under cover of the black market, it was difficult to know the going
price and quality of the product. That has changed.

Now, pricing is out in the open. Prices by the gram range from $6 to
$25, according to recent advertisements in the City Pulse, an
alternative weekly newspaper. Websites for local stores tout
colorfully named strains such as Ricky Bobby, Bubble Boy and Green
Crack, and reviewers offer nuanced descriptions on how each strain
differs from others.

Price is a function of supply and demand, and it can often take a
while for the market to find the optimum price for a product, Ballard
said.

"We don't really know what the equilibrium price is until there's been
some experience," he said, citing companies' initial public offering
of stock as an example. "There's a price out there for it, but you
don't know what it is because it's not traded yet."