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Copy of Externalities and Government Intervention: Plastic Bags

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Mr Wilson

on 11 March 2013

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Transcript of Copy of Externalities and Government Intervention: Plastic Bags

Externalities and Government Intervention: Plastic Bags The negative externalities associated with plastic bags Negative externalities occur when the production and/or consumption of a good imposes external costs on third parties outside of the market for which no appropriate compensation is paid. Why is intervention needed? Intervention Suggestions Analysis of intervention Evaluation of intervention Producing plastic bags requires millions of gallons of petroleum that could be used for transportation or heating.
Thousands of birds and marine mammals die each year after mistaking plastic bags for food and choking on them.
Plastic bags are not biodegradable. They clog waterways, spoil the landscape, and end up in landfills where they may take 1,000 years or more to break down into ever smaller particles that continue to pollute the soil and water. http://www.bbc.co.uk/news/magazine-17027990 Plastic bags cause immense harm to the environment, on a huge scale around the world. As well as clogging up landfills, they often end up in oceans around the world (see YouTube clip). http://www.envirosax.com/plastic_bag_facts The opportunity cost that results from producing enough plastic bags for the world's growing population is staggering. An estimated 12 million barrels of oil are used up every year to make the 100 billion plastic shopping bags that are used in America alone. http://www.bbc.co.uk/news/uk-northern-ireland-16787121 Taxation - introducing an appropriate charge for each individual plastic bag. Example: Wales
Complete ban - ban businesses from providing plastic bags. Fine them if they don't comply. Example: Italy http://www.bbc.co.uk/news/world-europe-12097493 Educate/Campaign - the government or environmental agencies can invest in advertising to educate the general public on the negative externalities associated with plastic bags and campaign for alternatives. Another overview of intervention suggestions: Northern Ireland case study: The main goal of taxation and campaigns is to reduce the aggregate demand for plastic bags, by making the opportunity cost (which could be the price, or a guilty conscience) of obtaining one too high for consumers.

Alternatively, in the case of a ban, the goal is to reduce the long run aggregate supply of plastic bags by preventing businesses from providing them.

In either case, the hope is that there would be less plastic bags produced, and as a result less dumped in landfills and less harm done to the environment. Campaigns and bans will be a success if they are implemented on a large scale and - in the case of bans- the fines for not complying are large enough. This has been proven true across the globe in places such as San Francisco (where a 'Save the Bay' campaign has proved very influential) and Italy.

In the case of taxation, for intervention to be a success, the tax may have to be adjusted (increased) after a period of time. This is in line with the economic theory that: 'immediate-term price elasticity is higher than long-term elasticity'. Over time consumers will adjust to the price increase and thus to continue to curb plastic bag use the tax may have to be further raised to a level that a greater amount of consumers will not be willing to pay.
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