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Plastic Bag Levy Case Study

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Plastic bag manufacturer in Lancashire has gone bankrupt and workers have been made redundant due to 5p plastic bag charge in England. Plastic bag charge is a type of indirect tax that is levied on expenditure of a good or service and it is a per-unit tax as it is levied on each unit of output by a fixed amount. The consumption of plastic bag produces negative externality; meaning costs experienced by third-party as more consumption leads to more non-biodegradable bags disposed in the environment,which can lead to plastic entanglement. Diagram 1: Effect of plastic bag levy on individuals behaviour As could be seen in diagram-1, the implement of the plastic bag levy had increased price from (P1- P2),which caused consumption of plastic bag to decrease by 80% from (Q1-Q2) as cost exceeds what consumers are willing to pay. Diagram 2: Plastic bag as a Negative Externality of Consumption (Market Failure)
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