A small charge for plastic shopping bags leads to massive fall.

England introduced a 5p (about 10c) charge for plastic bags in supermarkets. After six months there has been up to a 90% fall in plastic bags used.

The motive is to reduce negative externalities of consumption which have led to market failure. Not only were the bags unnecessarily up scarce resources, they are made from oil so there are negative externalities associated with production too. Also the disposal of the bags has to be in landfill because they cannot be recycled.

This example is an excellent one of regulation (it's not a tax) that internalises the externality. People are forced to consider the costs of the resources used by the imposition of a price. The PED is actually very difficult to determine as the price was originally zero, however we might at this stage suggest that there has been a highly elastic response!

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This is a great example for IB students and for VCE students it also illustrates the effect of using prices to correct market failure. It is unusual as it is a regulation rather than  tax, but clearly a 5p tax would have the same effect (while raising virtually no money).