Question

On 1 May, 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 ef fect. Say that the demand curve is P=10-Q. The supply curve (firms aggregate private marginal costs) is P=1+0.8*Q. The marginal excess damage is constant and equal to

1. a. Calculate the price and quantity on a free market. Also, calculate the consumer surplus, producer surplus, the environmental damage and net welfare.

b. Now assume an optimal chosen Pigou tax is introduced. Calculate the new price and quantity on the market. Also, calculate the new consumer surplus, producer surplus, the environmental damage, other effects and net welfare.

Answer 1

A ‘plastic tax’ is being introduced for the purpose of reducing plastic bag waste. Supermarkets and grocery stores in Sweden already charge for grocery bags, both plastic and paper, but now an additional SEK 3 will be added to all plastic grocery bag prices due to the tax.

The tax will not apply to freezer and garbage bags, but thin plastic bags such as those commonly used when shopping for vegetables and fruit will be taxed, albeit at a lower rate of 30 Swedish öre, per bag.

Results and expectations
Per Bolund, who is Minister for Financial Markets and Housing and Deputy Minister for Finance in Sweden for the Swedish Green Party, had this to say to TV4 about the proposed plastic tax: