Question

In: Economics

Background: Plastic packaging for products first became available in the 1950s, and its use has grown...

Background:

Plastic packaging for products first became available in the 1950s, and its use has grown exponentially over the last 65 years. Over the past several years people around the world have become increasingly aware of the impact of plastic waste on the environment. Large quantities of plastic waste in waterways, discoveries of plastics ingested by sea animals and microplastics in the food web motivated many consumers to look more carefully at how their consumption contributes to plastic waste.

Over the last 12 months, the major supermarket chains in New Zealand have stopped offering “single use” plastic bags for customers’ groceries. However, these plastic bags are one small form of plastic pollution. Plastic packaging exists on the bulk of consumer products. It facilitates transportation and reduces waste, by keeping the products free from damage, and, in the case of food products, reduces the risk of contamination and spoilage in the journey from manufacturer to the retailer’s shelf.

Consider the market for a food product that is wrapped in plastic packaging.

Examine what additional effects, or externalities, occur in this market, and explain why they are not taken into account by those directly involved in the market.

Solutions

Expert Solution

Usually plastic bags are smaller, much lighter, more durable easily available to everywhere. It is basically used by “normal customer”, “retailer” for transportation purpose because it reduce waste while moving goods. So, because of the many advantages of plastic bag there are wide ranges of use of it in various foods. So, the benefits are reflected by the “demand curve” and the costs are reflected by the “supply curve”.

Now, apart from the private cost there many “external cost” that they produce. First of all it is “non-biodegradable”, => decomposition doesn’t takes place. Once they are used can’t be used further. It creates pollution in water in soil. Even many animal die in ponds, see and in land. So, all of these possess big external costs, => negative externality.

So, in the above fig “D1” be the demand curve reflect “marginal benefit” and “S1” is the supply curve reflect “marginal cost” of food. Now, because the use of plastic bags causes external cost, => the “socially marginal cost” is given by “S2”. So, the equilibrium without the “external cost” is given by “E1”, => price and the quantity demanded are “P=P1” and “q=q1” respectively. Now, if the introduce the “external cost”, => the new equilibrium is “E2”, => the price and the quantity are given by “P=P2 > P1” and “q=q2 < q1”.

So, here as we take into account the external cost, => the price of food or any good where plastic is used increases and quantity demand decreases. Here the cost of making plastic bag is very less and because of various benefits there are wide use of plastic bags.

If we take the external cost into account then the price of bulk of the good including food and other goods increases, even for few good the price will be doubled. So, it will reduce the consumption massively and for few good the production of decreases to “0” because buyer will pay such a high price for those goods, => profitability for each business decrease, => “investment” will decreases, => economy will be effected. So, this is a big reason not to include the “external cost” plastic into account.


Related Solutions

Background Plastic packaging for products first became available in the 1950s, and its use has grown...
Background Plastic packaging for products first became available in the 1950s, and its use has grown exponentially over the last 65 years. Over the past several years people around the world have become increasingly aware of the impact of plastic waste on the environment. Large quantities of plastic waste in waterways, discoveries of plastics ingested by sea animals and microplastics in the food web motivated many consumers to look more carefully at how their consumption contributes to plastic waste. Over...
Background Plastic packaging for products first became available in the 1950s, and its use has grown...
Background Plastic packaging for products first became available in the 1950s, and its use has grown exponentially over the last 65 years. Over the past few years people around the world have become increasingly aware of the impact of plastic waste on the environment. Large quantities of plastic waste in waterways, discoveries of plastics ingested by sea animals and microplastics in the food web motivated many consumers to look more carefully at how their consumption contributes to plastic waste. Over...
Background Plastic packaging for products first became available in the 1950s, and its use has grown...
Background Plastic packaging for products first became available in the 1950s, and its use has grown exponentially over the last 65 years. Over the past few years people around the world have become increasingly aware of the impact of plastic waste on the environment. Large quantities of plastic waste in waterways, discoveries of plastics ingested by sea animals and microplastics in the food web motivated many consumers to look more carefully at how their consumption contributes to plastic waste. Over...
Background Plastic packaging for products first became available in the 1950s, and its use has grown...
Background Plastic packaging for products first became available in the 1950s, and its use has grown exponentially over the last 65 years. Over the past few years people around the world have become increasingly aware of the impact of plastic waste on the environment. Large quantities of plastic waste in waterways, discoveries of plastics ingested by sea animals and microplastics in the food web motivated many consumers to look more carefully at how their consumption contributes to plastic waste. Over...
Background: Plastic packaging for products first became available in the 1950s, and its use has grown...
Background: Plastic packaging for products first became available in the 1950s, and its use has grown exponentially over the last 65 years. Over the past several years people around the world have become increasingly aware of the impact of plastic waste on the environment. Large quantities of plastic waste in waterways, discoveries of plastics ingested by sea animals and microplastics in the food web motivated many consumers to look more carefully at how their consumption contributes to plastic waste. Over...
Background: Plastic packaging for products first became available in the 1950s, and its use has grown...
Background: Plastic packaging for products first became available in the 1950s, and its use has grown exponentially over the last 65 years. Over the past several years people around the world have become increasingly aware of the impact of plastic waste on the environment. Large quantities of plastic waste in waterways, discoveries of plastics ingested by sea animals and microplastics in the food web motivated many consumers to look more carefully at how their consumption contributes to plastic waste.Over the...
a. Jade Berhad is a manufacturer of plastic products. The company has consistently used FIFO (first-in,...
a. Jade Berhad is a manufacturer of plastic products. The company has consistently used FIFO (first-in, first-out) in valuing inventory, but it is interested to know the effect on its inventory valuation of using weighted average cost instead of FIFO. At 31 December 2017 the company had inventory of 8,500 standard plastic tables, and has computed its value of the tables on the two bases as: Basis Unit cost (RM) Total value (RM) FIFO 20 170,000 Weighted average 22 187,000...
USE THE FOLLOWING INFORMATION FOR THE NEXT 2 QUESTIONS Cornell Products has the following information available...
USE THE FOLLOWING INFORMATION FOR THE NEXT 2 QUESTIONS Cornell Products has the following information available for 2020:                                                                          UNITS                                                      BEGINNING INVENTORY-----0 UNITS                                                      ENDING INVENTORY----5,400 UNITS                                                                             COSTS Direct materials $1.00 per unit Direct labor $2.00 per unit Variable manufacturing overhead $1.50 per unit Variable selling and administrative costs $ .50 per unit Fixed manufacturing overhead $30,000/6,000 = $5.00 per unit Fixed selling and administrative costs $25,000 During 2020, Cornell produced 6,000 units out of which 5,400 units...
2. A semiconductor factory initially estimated that 1% of its products have a faulty packaging and...
2. A semiconductor factory initially estimated that 1% of its products have a faulty packaging and want to show that actual fault rate does not exceeds this initial estimate. A random sample of 1200 products yielded 19 defected ones. Test the initial estimation with this. a. Calculate the test statistic Z. b. Test the company’s initial estimation (H0) with 90% confidence level. Use one-tail test. Calculation process of the test must be described. c. Referring Problem 2, what is the...
Ridgecrest Company manufactures plastic storage crates and has the following information available for the month of...
Ridgecrest Company manufactures plastic storage crates and has the following information available for the month of April: Work in process, April 1 (100% complete for materials, 44% for conversion) 26,600 units Direct materials $ 20,000 Conversion cost $ 27,000 Number of units started 54,400 units April costs Direct materials $ 60,800 Conversion cost $ 102,800 Work in process, April 30 (100% complete for materials, 22% for conversion) 23,000 units Required: Using the weighted-average method of process costing, complete each of...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT