How to plan and write an economics IA

Step 1

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The article that we will analyse in this example can be found here.

• Market Failure – inefficient allocation of resources
• Externalities:
  Demerit good – plastic bags creating a negative externality of consumption
  Merit good – biodegradable bags or cloth bags creating a positive externality of consumption
• Welfare loss
• Government Intervention:
  command and controlled method – Banning
  Free-market-oriented – indirect taxation on plastic bags
  Subsidy to promote the positive externality

• Market Failure – existence of externalities
• Demerit good – the consumption of plastic bags leads to a negative externality of consumption, the external cost is unhealthy oceans and fishing grounds, destroying the natural habitat, environmental damage to trees and environment (Reference to the quotes from the article):
  • A fishing hub near the mouth of the Copper River, is dependent on healthy oceans. She said a plastic bag ban would help reinforce that message in the community. It would also help clean things up.
  • She said it’s not unusual to see plastic grocery sacks stuck in trees or bushes along the highway leading out to the landfill, 17 miles from the city center.
  • He often goes hunting for rabbits along the road. Bags and plastic foam clamshell boxes dot the landscape. “They’re everywhere.”
• Explanation of the diagrams and short overview of short-run and long-run effects of this externality to the society
• Government Intervention – use of the command and controlled method – banning ( direct regulation) to diminish the negative externality
• Discussion on the short-run and long-run pros and cons of the banning – government intervention in the market: Use of quotes from the article to support discussion:
  • He said the biggest challenge has been trying to get Cordova’s sizable transient population to understand the upcoming ban
  • Cordova’s one-year lag was to give businesses time to adapt to the change,
  • Enforcement will be through the police department, with violators facing a fine of up to $1,000. But interim city manager and Police Chief Mike Hicks said it’s unlikely the maximum fine would be imposed. He said most retailers have been receptive to the change.
  • “I don’t think we’re going to have any problems with people switching over,” he said. “I think it’s going to go just fine.”
• Comparison to alternative policies as outlined in the article: a Fairbanks tax on plastic bags was considered
• Discussion on direct regulation impact vs use of indirect taxation ( free-market method) so compare and contrast pros and cons of the banning with the indirect taxation
  • Be clear on the meaning of Fairbanks ( see here for further information: https://en.wikipedia.org/wiki/Fairbanks,_Alaska)
  • Use of quotes from the article to support discussion:
    A Fairbanks tax on plastic bags was considered by the City Council in 2009, but community pushback forced the city to rescind the measure before it ever went into effect.
• Other alternative solutions – promotion of merit good – biodegradable bags and/ or reusable cloth bags e.g. through subsidy: Use quotes from the article:
  • He’s been saving boxes and looking into buying reusable cloth bags for customers. But those are expensive, and customers would have to pay for them.
  • This summer the store handed out 400 reusable bags hoping to target those customers. They were a hit.
  • “We have a lot of people come through with the cloth bags,” Branch said. “It’s really is cool to see people embracing it.”

• Negative externality of consumption ( plastic bags – external cost – environmental hazards) + effect of banning
• Imposition of a fairbanks tax ( indirect tax) on plastic bags in the negative externality of consumption diagram
• Positive externality of consumption (cloth bags) + use of subsidy to promote these further and support businesses and customers in the transition period

For example:

Economics IA graph example