Economics

Question 1: What is the significance of the pollution from plastic bags? What is the scale of this pollution problem compared to other forms of pollution?

Answer:
Pollution from plastic bags or bottles has involvement from the accumulated products made of plastic which in turn adversely affect the environment which consists of wildlife, and humans. It can affect lands, waterways like oceans and rivers. The biggest prominent factor for usage of plastic bags is due to inexpensiveness and durability of it, which automatically increases its usage among human beings. Since, most of the plastic bags are difficult to recycle; they land up on the water beds and affect the animal kingdom. Sea animals gobble up these plastics, which eventually goes in human stomach as humans consume these animals like fish.
Top items found on beaches are
• Plastic fragments (2.5 cm)
Thus the majority of the items found on the beaches are made of plastics, which eventually does not degenerate and pollute the environment.
Other types of major pollution are
1. Air Pollution
a. Noise Pollution – Unwanted sound causes this kind of pollution. Examples like loud music cause such kind of pollution which has detrimental effect on humans and animals.
b. Tobacco Smoke – Not just the smoker but also the surrounding person is affected by the smoke. It is the major cause of pollution among societies and buildings.
c. Exhaust gas from vehicles – It is the major form of air pollution and almost 80% air pollution is due to this.
2. Water Pollution
a. Industrial affluent – After being used in production, water is disposed and discharged which causes lot of issues as it contains alkalis, salts, toxins, etc
b. Domestic Wastes & Sewage Disposal – these wastes are often allowed to pollute rivers and dams.
c. Oil Spilling- Major form of marine pollution is formed by oil spill in oceans. This cause huge loss as well as brings lot of destruction to wildlife.
3. Land Pollution
a. Soil Pollution – Mainly due to herbicides and pesticides.
b. Waste Disposal – again waste is being disposed in the land by households.

Plastic pollution falls under both land and water pollution, as it can be disposed off either in land or water. But the scale of plastic pollution is of much bigger range as 100,000 marine mammals & 2 million sea birds die each year after ingesting or being trapped in plastic debris. The problem with plastic is it doesn’t break down chemically, it only breaks into smaller. 70% of the garbage in the ocean is on the sea floor. This means that the island is only a fraction of the garbage problem. 90% of ocean garbage is plastic. Eventually, the pieces become small enough to move into the food chain. Most of the garbage that ends up in the ocean comes from land. It’s simple, really: trash travels over land, into the streams, and out to the ocean. Our garbage - yours and mine - is ending up in the ocean.
Question 2: What type of market failure causes this type of pollution problem? Illustrate it on a diagram.

Answer:
When a product is very inexpensive to use, and is very durable, it is not surprising that its usage increase automatically. Same is the case with plastic bags. Since, it can be produced and being delivered to end customer at very cheap price, and it gave stability to the end customers, hence its popularity became an overnight success and people started to use it extensively. But as more and more people started using it, its negative externalities started coming into picture. And soon it became a non disposable product. Though the market of recycling came into picture, but customers were not just recycling the waste product and it started to being disposed in the water bodies, which eventually affected the nature cycle, which is being shown in the below image. Since, plastics cannot be degenerated; it is being broken into various small pieces and is thrown in the water. Fish and other water animals consume those particles, which eventually goes to human as the fish is being consumed by us.

Question 3: Discuss two possible solutions to reducing the pollution: a ban on plastic bags or a system of charges (taxes on plastic bags). Demonstrate how they might operate using a diagram and show the effect on the demand for plastic bags on the diagram.

Answer:

The first solution is ban on plastics bags. Banning the plastics bags can reduce the usage of bags but can cause rippling effect on the employment force of those industries which produce plastics bags. Also, will this ban have any effect on the litter is of another concern. Consider a study by Ospar, the European organization working to protect the marine environment. The study found plastic shopping bags represented less than 3% of marine litter on European beaches, a figure that includes scraps of plastic from shredded bags. So, just banning the shopping bags might not bring so much change.

System of charges i.e. taxes on plastic bags might have the following advantage
1. They will be providing incentives for that behavior which protects or improves our environment, and also deter the actions which are damaging to our environment.
2. Economic instruments like charges or taxes can enable the environmental goals which are to be achieved with the minimal cost and also in the most efficient way
3. Also, by breaking environmental costs into amount of taxes, it helps that signal has been shown to change the economic structure which is needed to proceed towards a better sustainable economy.
4. It also encourages innovation as well as the development for new technology
5. The earnings from the taxes collected via the environmental taxes are being used to reduce the burden from other form of taxes, which eventually can help to reduce inefficiency within the economy, and also raising the efficiency for those with which the resources are being used.

The main target for an environmental tax is by finally increasing the company’s private marginal cost called PMC, till it equates with the social marginal cost curve called SMC. It will result in a very efficient level of output.
The below diagram shows that what it would mean setting tax equivalent to the vertical distance between Qs and Qp, which is similar to the level of damage done to environment which has been caused towards the optimum level of output. Though environmental taxes are being used with high frequency by government bodies across the world as these are the instruments which have been designed to deal with the environmental externalities, we must also evaluate the problems in relying on such kind of taxation for correcting of the market failure. Many economists have argued that the explicit pollution taxes can create further problems which will eventually lead to a government failure with very little sustainable improvement within the given environmental conditions.

Question 4: Explain whether a ban on plastic bags will impose any costs on households.
Answer:
Yes, ban on plastic bags will impose cost on the households. As, plastics bags are very cheap and practically consumers have to pay nothing to get them while shopping, the scenario will change if the ban is kept on the bags. Now the replacement of the bags will be paper bags, which will be costly and shopkeepers will pass on the charge to the end customer. So, now end customer has to pay for the bags while shopping.
Question 5: Explain how marginal-cost and marginal-benefit analysis should be used to evaluate whether a ban on plastic bags is worthwhile.
Answer:
Banning will create both benefits and costs accruing to users in the system. Policymakers seeking to achieve a Pareto optimal situation must account for both benefits as well as costs when determining an optimal banning level. Here we will follow Perman et al. (2003, Chapter 5) in their partial equilibrium analysis of market efficiency to show that any Pareto efficient level of plastic bag banning will occur at the point of maximized total net benefits in society (NB). It begins by identifying the benefits and costs to society of plastic bag banning. Then, defining net benefits as total benefits minus total costs, an efficient level of plastic bag banning would be one that maximizes net benefits
Assume that
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