ECONOMICS

Assignment

Assignment

Question # 1

The significance of this case is to create awareness among the residents of Australia regarding the advantages and disadvantages of plastic bags in Australia. Plastic bags are also becoming one of the reasons in destroying the global warming all over the world. By the end of year 2002, Australians were using about 6 billion single-use plastic bags per year. Most went to landfill and some were recycled but around 70 million of them (just over 10%) ended up as litter in the environment. It is these 70 million bags that are a problem. They persist in the environment and have the capacity to injure wildlife, particularly in water environments. Plastic bags also block drains and sewers and plastic litter is an eyesore.

I also use the plastic bags, it is usually use in carrying the goods. There are numerous solutions to reducing the negative externalities of plastic bags including banning plastic bags, imposing a tax or levy on their use, subsidising environmentally friendly bags and recycling methods and litter management as well as loyalty card points (United Nations Environment Programme, 2005, p.29). Although, each solution will lead to less aesthetic damage, improvement in marine and wild life and lower hazardous emissions these is all flow on effects from the economic solutions stated below. In most cases the disadvantages outweigh the advantages as the implementation of these solutions are affected by equity and fairness which is the government's role to provide.

Solution 1: Command and Control

The government can intervene by imposing quantitative limits on the production and use of plastic bags (Hubbard et al, 2009). Essentially this method has been widely used with 25% of the world now restricting or completely banning plastic bags, including Bangladesh, India, Taiwan and China ((SMITH, 2004, p.11). This has been widely applied, as it is often the easiest and simplest method for reducing pollution as measuring the size and extent of external costs and benefits for taxation and subsidies can difficult as well as enforcing property rights.

Solution 2: Tax

The government can impose a tax equal to the marginal external cost to reduce the consumption of plastic bags. By imposing a tax, the consequences will cause the producer to internalise the negative impacts. This is shown below as the cost of pollution will become an additional private cost and the supply curve will shift from S1 to S2, resulting in a decrease in output from Q1 to Q2. The price of the plastic bags will rise from P1 to P2 which reflects the true costs of the pollution. This will change the behaviour of private market participants reducing demand, leading to an economically efficient level.

Solution 3: Subsidies

A subsidy for eco-friendly reusable bags can be used to reduce its price, as they are more costly to produce than plastic bags, hence government intervention can be implemented to increase the consumption of reusable bags (Hubbard et al, 2009). Diagrammatically this will move the private benefit curve to the left, increasing demand from D1-D2, assuming the subsidy is given to ...