The be done to curb consumption. Plastic bags

The article is about the impact of the use of plastic bags
and what should be done to curb consumption.

 

Plastic bags are demerit goods as the consumption of it
creates negative spillover effects. In the absence of government intervention,
the free market fails to account for the negative externalities of consumption.

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This imposes costs on third parties which the consumers did not pay for. In
2016, only 7% of the 822,200 tonnes of plastic waste generated was recycled.

The rest end up as litter clogging waterways and streets, posing a danger to
wildlife. Therefore, the market for plastic bags is an example of market
failure due to the over-allocation of resources which leads to the
over-provision of demerit goods.

 

The diagram below is a model for negative externalities. The
consumer only considers the private benefit of consumption, ignoring the
external costs generated in the consumption of plastic bags. Some of the external
costs created are the extra resources used to clean up waterways and for marine
animal rescue efforts. Instead, the consumers benefit as plastic bags provide
convenience to their daily life. The true benefit obtained by the society is
lesser than the benefits for the individual consumer. The vertical distance
between the MSB and MPB shows the cost incurred by a third party. In figure 1
below, the socially optimum amount of plastic bag consumption is at
intersection e0, where the quantity of plastic bags consumed is Qopt
at price Pe. However, in actual fact, a larger quantity Q1
is consumed by the market. There is therefore an over-consumption of plastic
bags as compared with Qe. The social cost being greater than the
private cost causes the society to incur a welfare loss, represented by the shaded
area in the diagram below. The market has over-allocated limited resources to
the production of plastic bags, failing to allocate efficiently. 

As mentioned in the article, one way to discourage
consumption is by taxation. Singapore’s main supermarket chains are in
discussion to impose a surcharge for plastic bags of 5 to 10 cents to
discourage consumption. Due to the increase in cost, consumers would be less
likely to consume as many plastic bags as compared to before the surcharge was
put in place. Therefore, in figure 2, demand falls and the demand curve moves
inward, to the socially optimum level where demand, D’, for plastic bags equals
to the marginal social benefit. Taxation is implemented in many countries and
cities around the world such as Hong Kong, California and Ireland. However, the impact of a plastic bag surcharge is most likely
dependent on its price elasticity of demand. This concept measures the responsiveness
of the quantity demanded to a change in price, ceteris paribus. A ten cent
surcharge is only a tiny fraction of a consumer’s income. Assuming each plastic
bag has a 10 cents surcharge, calculations done by Zero Waste SG show that the
surcharge makes up only 0.35% of the annual income of a household living in
2-room public flat. Demand can be expected to be relatively inelastic given that
the extra surcharge is only a small proportion of a consumer’s income, the
desired outcome by taxation might not be achieved efficiently. The quantity of
plastic bags demanded is unresponsive to the change in price. A large amount of
tax will have to be levied in order to effectively decrease consumption of
plastic bags.  In order for the small surcharge to create an impact, government
involvement is necessary. In order for a tax to be effective, education has to
be used hand-in-hand with taxation. Education and provision of information by
the government on the harmful effects of consumption of plastic bags helps
increase public awareness. When consumers want to reduce consumption to save
the earth, their willpower will aid in causing a major fall in the demand for
plastic bags. However, there are also limitations to policies like education in
the long run. It requires large amounts of government spending, which incurs
opportunity cost as it could have been better used for healthcare for example.  

Taxation and education has to be implemented jointly as the tax
revenue collected can be injected into the fund for education. This way, the
government suffers lesser opportunity costs and at the same time the
consumption will decrease.