Monday, June 11, 2007

Unit 2: Are plastic bags demerit goods?

This BBC clip says Belgium will follow the example of Eire and tax plastic bags

< http://www.bbc.co.uk/mediaselector/check/player/nol/newsid_6730000/newsid_6739700?redirect=6739771.stm&news=1&nbram=1&nbwm=1&bbram=1&bbwm=1 >

a) Would you agree that plastic bags are demerit goods? Are both conditions present?
b) How does the free market fail if plastic bags are given away?
c) Draw a diagram to show the effect of the tax on the bags
d) Explain the effect and how it overcomes the market failure
e) Evaluate how likely is it that the tax will reduce the market failure
f) Explain one other method the government could have used to reduce the market failure and suggest two drawbacks to using this method

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