The article is about the use of plastic bags and the negative environmental effects that it had in Cordova. It articulates the measures taken to reduce the use of plastic bags. As more plastic bags are used an uneconomic use of the resources is taking place thus market failure occurs. Market failure is a situation whereby the allocation of resources by the free market is inefficient. It can be exhibited in the form of, the existence of externalities both positive and negative.
An externality is said to exist when the third party is affected either positively or negatively by the decisions and actions of others. A negative consumption externality occurs when the marginal private benefit exceeds the marginal social benefit. While a negative …show more content…
This results in market failure shown by the welfare loss area (XYZ). A consideration of the externality will shift the demand curve to the left from (D=MPB) to (D1) which represents the marginal social benefit with a lower price(P1) and socially desired optimum quantity(Q1).
Negative consumption externalities can be corrected by using market based solutions, such as taxes, or command and controls solutions, such as bans and fines. The article states that, “tax on plastic bags were considered by the city council in 2009” and subsequently an outright ban.
In the above diagram the demand for plastic bags is represented by the marginal social benefit while the supply is equal to the marginal private cost. This results in an equilibrium price of (p) and the quantity of (q) leading to a negative production externality. The imposition of a tax would internalize the externality, shifting the supply curve to the left to represent the marginal social cost, eliminating the welfare loss denoted but the triangular area (ABC). This results in a higher equilibrium price of (p tax), decreasing the quantity to a socially optimal level of …show more content…
However, in the long run it could have had distributional consequences. Firstly, taxes can be regressive in nature which would put a higher burden on lower income shoppers and also it could create a disincentive on production which would lead to a loss of jobs. As a result, there was a resistance by the community (“community pushback”), therefore local authorities were forced to consider other options.
Command based solutions were proposed such as bans. A ban is when the government passes a law in which it makes it completely illegal to produce plastic bags or to use them. In the short run the ban would completely eliminate its use and decrease production. However, in the long run manufactures would loss sales, forcing them to shut down their factories, thus increasing unemployment. For the shop owners it may decrease their short term sales as there would be an inconvenience of the
An externality is said to exist when the third party is affected either positively or negatively by the decisions and actions of others. A negative consumption externality occurs when the marginal private benefit exceeds the marginal social benefit. While a negative …show more content…
This results in market failure shown by the welfare loss area (XYZ). A consideration of the externality will shift the demand curve to the left from (D=MPB) to (D1) which represents the marginal social benefit with a lower price(P1) and socially desired optimum quantity(Q1).
Negative consumption externalities can be corrected by using market based solutions, such as taxes, or command and controls solutions, such as bans and fines. The article states that, “tax on plastic bags were considered by the city council in 2009” and subsequently an outright ban.
In the above diagram the demand for plastic bags is represented by the marginal social benefit while the supply is equal to the marginal private cost. This results in an equilibrium price of (p) and the quantity of (q) leading to a negative production externality. The imposition of a tax would internalize the externality, shifting the supply curve to the left to represent the marginal social cost, eliminating the welfare loss denoted but the triangular area (ABC). This results in a higher equilibrium price of (p tax), decreasing the quantity to a socially optimal level of …show more content…
However, in the long run it could have had distributional consequences. Firstly, taxes can be regressive in nature which would put a higher burden on lower income shoppers and also it could create a disincentive on production which would lead to a loss of jobs. As a result, there was a resistance by the community (“community pushback”), therefore local authorities were forced to consider other options.
Command based solutions were proposed such as bans. A ban is when the government passes a law in which it makes it completely illegal to produce plastic bags or to use them. In the short run the ban would completely eliminate its use and decrease production. However, in the long run manufactures would loss sales, forcing them to shut down their factories, thus increasing unemployment. For the shop owners it may decrease their short term sales as there would be an inconvenience of the