Article: in other sectors of the economy. Before the

 Article: https://www.standardmedia.co.ke/business/article/2001262070/plastic-bags-still-on-sale-as-kenyans-struggle-to-adjust

This article is about the paper bag ban enforced in Kenya
and the black market formed as a result of the paper bag ban due to its high
demand in the market. Demerit goods are goods that when consumed have harmful
effect on the society.

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Paper bags are demerit goods as when consumed they are not
properly disposed of in Kenya and have detrimental effects on the environment
which effects the society negatively. Thus the society has to incur a cost to
clean the environment that shifts resources which could be used for other
projects that can benefit the economy in other ways. This causes market failure
which is when allocation of resources is not efficient in a market. This market
failure can be corrected by use of bans.

The article shows the ban of the plastic bags and the
effects it has caused to the market as a result of the ban. The ban should stop
all paper bag consumption thus less resources are needed to clean the
environment thus they can be used in other sectors of the economy.

Before the ban the following
diagram below would be the case.

Graph of negative
externalities of consumption of paper bags

 

 

 

 

               

 

 

 

 

 

 

 

 

In the above diagram the socially efficient value would be
where MSB = MPB where marginal social benefits which are benefits the society
enjoys is the same as marginal private benefits which the consumer enjoys.  But due to the negative externality of environmental
issues marginal social cost is less than marginal social benefit as the society
has to pay for the environmental issues. In the socially efficient market P*
should be the price and Q* should be what is produced and consumed but due to
the market being a free market consumers will maximize their private utility
and ignore the externality so consumers will consume at Q1 at a
price of P1. Since Q1  is
more than Q* then there is over consumption that causes market failure as there
are more resources being put into paper bags compared to other projects or
products. This make the consumption at MSC = MPB that creates a welfare loss.

To remove the negative externality a ban was imposed on
paper bags according to the article and the ban removes most of the externality
as paper bags won’t be produced and consumed that should stop the paper bag
used but due to ban but according to the article the ban has caused a black
market to for as a result of the ban due to the inelasticity of paper bags
which can be shown by the diagram below. Inelastic goods are goods where a
change in price has a very small change in demand

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In the diagram above the price before the ban was at price P1
and quantity Q1 but after the ban a black market formed that
increased the price from P1 to P2 and due to paper bags
being very inelastic the quantity demanded has changed by only a small amount
from Q1 to Q2 compared to the change of price

The article also talks about the price increase where a 200
packet of bags change price from Ksh 50 to Ksh 130 due to it being bought from
the black market. But even after the price increase there is still demand for
the paper bags as seen in the article.

The ban has its advantages and disadvantages which are the
following

The advantages of the ban are that it reduces the negative
externality by a large amount compared to a tax as it attempts to remove the
problem entirely compared to a tax which doesn’t solve the littering and the
environment would still suffer.

The problem of the ban is that it has made a black market as
from the article there is still paper bags being sold for a higher price that
also makes a negative externality even though not as huge as before the ban,
still exists as from the article it states that there is still littering of
paper bags after the ban.

The stake holders affected by this ban are as follows

The consumers- who are worse of as they have rather find
alternatives compared to using paper bags or buy the paper bags in the black
market for a higher price than before

The paper producers – who are worse off as they have to stop
production of paper bags thus losing their place in the economy

Paper bag alternative producers –who are better off as they
have increased demand as they are a substitute to paper bags thus they are
better off.