![]() That could have existed, won't exist anymore, so you would actuallyīe destroying surplus. This society right here, if you just banned plastic bags, what would happen? Well, then this market just won't exist. If you were to just ban plastic bags as this benevolent emperor, maybe seemingly or hopefully benevolent emperor of One core assumption we're going to make is that this is an accurate assessment of the external cost per bag. Let's think about which of these will result in the most surplus, the most benefit to society in aggregate. ban plastic bags, you could put a quota on plastic bags, you could put a quota, so saying that more than a certain amount of bags could not be produced, or you could tax plastic bags, or you could tax plastic bags. So if you are the benevolent emperor in this society, what do you do? What do you do to get the quantity closer to this point right over here than what the equilibrium quantity will be when you don't factor in the external cost? There's a bunch of options here. Were the supermarkets, then the equilibrium price that'll be reached will be right over here because although we're theoretically saying that there's this cost over here, the cost won't be factored in into the markets. ![]() One thing that we did not touch on in that video, is howĭoes this actually happen? If we just let things be, and we just had the supplier's marginal cost curve and we have the consumer's demand curve, in this case, the consumers Quantity of plastic bags so that we actually do not eat into our surplus by creating all of this negative surplus where the total cost of the bags are higher than the total benefit. Then we were able to figure out that if we factor this in, instead of just having the regular marginal cost cover the suppliers, if we added that marginal cost curve to the external cost, we would get a supplier plus external costs, marginal cost curve, and then we'd get what is actually the optimal price and This two cents a bag is the impact on litter in the environment. We assumed in that video that we were able to calculate the actual external cost of a plastic bag. ![]() It causes litter, it might damage animals and the environment in some way. Thought about externalities, the negative externalities of having plastic bags around. Ie, you're losing that area of consumer/producer surplus (which we would normally call a deadweight loss), but you're also losing a societal negative surplus of that exact same area. However, that deadweight loss area is being zeroed out by societal negative surplus anyway - it never counted. That is the surplus area lost when we shift equilibrium left from 3.5 to 1.5. Therefore, the deadweight loss area is the part between the green and purple lines, from Q=1.5 and Q=3.5. Then there's some "surviving" societal negative surplus to the right which is the purple triangle. The area with the vertical yellow lines is the only producer surplus that "survives" - the rest is zeroed out by the societal negative surplus. ![]() The part that he shaded with slanted white stripes is societal negative surplus being zeroed out by positive consumer and producer surpluses. The total societal negative surplus area is the area between the white supply curve and the green supply curve, from Q=0 to Q=3.5. When he filled in the purple "triangle" he sort of glossed over that point, but the purple area is the "societal negative surplus" that's not being balanced out by a consumer surplus or producer surplus.
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