On 1 May 2020, an environmental tax on plastic bags was introduced in Sweden. The tax is 3 kronor per plastic bag and has made the plastic bags in grocery stores about twice- as expensive as before. The tax has been criticized for being too high, since some say that the environmental benefits are not that large from using less plastic bags in Sweden. Assume a market with an environmental damage due to an negative external effect. Say that the demand curve is P=12-Q. The supply curve (firms aggregate private marginal costs) is P=1+0.6*Q. The marginal excess damage is constant and equal to 2. Calculate the price and quantity on a free market (without an environmental tax). Also, calculate the consumer surplus, producer surplus, the environmental damage and net welfare.

On 1 May 2020, an environmental tax on plastic bags was introduced in Sweden. The tax is 3 kronor per plastic bag and has made the plastic bags in grocery stores about twice- as expensive as before. The tax has been criticized for being too high, since some say that the environmental benefits are not that large from using less plastic bags in Sweden. Assume a market with an environmental damage due to an negative external effect. Say that the demand curve is P=12-Q. The supply curve (firms aggregate private marginal costs) is P=1+0.6*Q. The marginal excess damage is constant and equal to 2. Calculate the price and quantity on a free market (without an environmental tax). Also, calculate the consumer surplus, producer surplus, the environmental damage and net welfare.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter12: Environmental Protection And Negative Externalities

Section: Chapter Questions

Problem 1SCQ: Identify the following situations as an example of a negative or a positive externality: You are a...

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