Fill This Form To Receive Instant Help
Fill This Form To Receive Instant Help
Homework answers / question archive / Drinking straws have been in the news lately as a way to highlight the dangers of excess plastic use
Drinking straws have been in the news lately as a way to highlight the dangers of excess plastic use. The plastic in a drinking straw is used for a few minutes, but lasts basically forever, often ending up a landfill or breaking down and adding plastic particles to the water supply. Let's assume the private benefit of one more drinking straw is $1 and the social cost of one more drinking straw is $45. How can we use taxes or subsides to correct this externality?
a. Start a $1 tax on drinking straws
b. Start a $45 tax on drinking straws
c. Start a $1 subsidy on drinking straws
d. Start a $45 subsidy on drinking straws
e. Start a $44 tax on drinking straws
f. Start a $46 tax on drinking straws
g. Start a $44 subsidy on drinking straws
h. Start a $46 subsidy on drinking straws
To correct this externality:
It is provided that the private benefit of one more drinking straw is $1 and the social cost of one more drinking straw is $45. Here, negative externality occurs because the consumption affects the environment negatively. For measuring negative externalities, taxes are imposed than giving subsidies. Taxes would reduce the consumption and hence would reduce the output level.
The socially optimal level occurs when marginal social benefit equals marginal social cost. Here no external benefit occurs, thus, marginal private benefit equals marginal social benefit, that is $1. On the other hand, marginal social cost is $45.
Now, the socially optimal level will occur at:
MSB = MSC
$1 + x = $45
x = $44.
x represents tax that would equate marginal social benefit and marginal social cost.
Therefore, to correct this externality start a $44 tax on drinking straws
