I love econ-o-geeky questions like this. In Trono, retailers have been required to charge five cents/bag instead of giving them away at the checkout. As a result, usage of the bags fell by 50%.
So let's see. E = (% change in Qd)/(% change in P)
The % change in Qd is given as 50%, but what's the % change in price, given that it started at zero? Infinite? probably not. Arc Elasticity of demand might be a good stop-gap solution: The % change in P = 5 cents/(avg of beginning and ending price) = 5/2.5 = 2.0.
So in this case E = .5/2 = .25 (ignoring the negative sign for the change in Qd).
Why did it occur to me to post something like this after not having posted anything for a "few" days?
Here's why: the Trono City Council, having had a five cent charge on single-use plastic shopping bags in place, became frustrated with what or was not being done with the $5m revenue from the sales of these bags. So what did they do? They voted to ban all plastic single-use retail shopping bags as of Jan 01, 2013.
What a bunch of doinks (a technical term for econo-idiots).
The 5-cent charge was doing its job. It was discouraging the use of single-use plastic bags, and rather substantially at that. But because the city council was concerned that the proceeds were not going to environmental groups, they got their knickers in a knot, and banned the bags outright. Really.
So even though the charge operated effectively as a Pigou Tax, councilors have scrapped it because some politically favoured groups were not receiving the proceeds? That is so stupid.
The effect of this outright ban will be two-fold:
- Those groups will not receive anything as a result of this policy change. It won't make them any better off.
- Shops will be forced to switch to paper bags, the manufacture of which creates serious environmental problems and which are far less convenient for consumers.
I wonder if there`s an in-trade bet available for whether they'll reverse themselves.
This kind of nonsense just piles on the problems of "regime uncertainty". How can people make sensible plans or reasonable future business decisions when politicians like these are running amok?