<p>Prior to the tax, the marginal private cost is zero (so the MPC curve is a horizontal line along the x axis).</p>

<p>The individual chooses to consume where marginal private benefit is equal to marginal private cost (i.e., where the MPB curve crosses the x axis).</p>

<p>A tax of 0.05 implies that the marginal private cost (i.e. the cost per unit consumed) is now 0.05. This means that we get a new MPC curve that is a horizontal line at p=0.05. The new privately optimal consumption occurs where this new MPC curve intersects the MPB curve, which results in a lower quantity consumed.</p>

CC BY-SA 3.0
2017-02-09T10:48:55.657Z
That is what I was thinking too. But where would you have the welfare loss triangle in this diagram? My thinking is that it would be under the x-axis.
khosthos
CC BY-SA 3.0
2017-02-07T18:10:48.943Z
2017-02-07T18:10:48.943Z
Ubiquitous
<p>The price of plastic bags in Scotland has been increased from free to 0.05 pounds sterling. How would I represent the negative externality decrease using a diagram in such a situation?</p>

<p>This is what I have so far. I'm not sure that it is correct.</p>

<p><a href="https://i.sstatic.net/8djcI.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/8djcI.png" alt="enter image description here"></a></p>

CC BY-SA 3.0
2017-02-08T14:27:39.937Z
Economist Bryan Caplan has argued that these bag laws are not actually a tax but rather a price floor. http://econlog.econlib.org/archives/2017/01/californias_gre.html The fact that retailers can't pay the price for you is what makes it a price floor and not a tax. And, in many jurisdictions, it isn't structured like a tax in that the state doesn't get the revenue.
BKay
<externalities><market-failure>
What would a negative externality diagram look like if the initial price is equal to 0 and then increased with tax?
khosthos
# What would a negative externality diagram look like if the initial price is equal to 0 and then increased with tax?

(Asked by: username_0 on 2017-02-07)

The price of plastic bags in Scotland has been increased from free to 0.05 pounds sterling. How would I represent the negative externality decrease using a diagram in such a situation?

This is what I have so far. I'm not sure that it is correct.

[![enter image description here](https://i.sstatic.net/8djcI.png)](https://i.sstatic.net/8djcI.png)

**Tags:** externalities, market-failure
> **Comments:**
> **username_1**: Economist Bryan Caplan has argued that these bag laws are not actually a tax but rather a price floor. http://econlog.econlib.org/archives/2017/01/californias_gre.html The fact that retailers can't pay the price for you is what makes it a price floor and not a tax. And, in many jurisdictions, it isn't structured like a tax in that the state doesn't get the revenue.  

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## 1 answers

### Answer by username_2 on 2017-02-07. Score: 0 | Accepted answer

Prior to the tax, the marginal private cost is zero (so the MPC curve is a horizontal line along the x axis).

The individual chooses to consume where marginal private benefit is equal to marginal private cost (i.e., where the MPB curve crosses the x axis).

A tax of 0.05 implies that the marginal private cost (i.e. the cost per unit consumed) is now 0.05. This means that we get a new MPC curve that is a horizontal line at p=0.05. The new privately optimal consumption occurs where this new MPC curve intersects the MPB curve, which results in a lower quantity consumed.

> **Comments:**
> **username_0**: That is what I was thinking too. But where would you have the welfare loss triangle in this diagram? My thinking is that it would be under the x-axis.  

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