Economics 1st Edition by Dean Karlan,Jonathan Morduch

Exercise 24

Many municipalities are concerned about the environmental impact of plastic bags, which often end up as litter, clogging drains and hanging from tree branches. A town is considering whether to impose a tax on plastic bags to be collected at the store, or a per person quota. Cindy and Carl are two average citizens who both use plastic bags when they go grocery shopping. Figure 18P-7 shows the net marginal benefit they gain from each bag they use.
a. Under the quota, what is the marginal benefit of the last bag for each?
b. How many bags will each shopper use under the tax? What is the marginal benefit of the last bag for each? What is

the marginal benefit of the last bag after subtracting the tax?
c. Would you recommend that the town adopt a plastic-bag quota or tax?