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. Is a Coasian solution possible here? Explain why/why not.
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. Is a Coasian solution possible here? Explain why/why not.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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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.
Is a Coasian solution possible here? Explain why/why not.
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