Philadelphia supermarkets and distributors say beverage sales have dropped 30 percent to 50 percent after the city instituted a 1.5-cent-per-ounce tax on sugary and diet drinks. On one hand, these are the same people who want to get the tax repealed, and we don’t have hard numbers yet, so take this with a grain of salt. On the other hand, the whole point of the tax is to reduce consumption of stuff that will kill you anyway, so … good job?
To measure the responsiveness of consumers to price changes, economist use what is called the 'price elasticity of demand.' In simple terms, the price elasticity of demand tells us whether consumers react a little or a lot when the price of a good changes.
In technical terms, the price elasticity of demand is equal to the percentage change in the quantity demanded divided by the percentage change in the price. Because of the law of demand we know that the quantity demanded and the price will move in opposite directions, so the elasticity demand is a negative number. To confuse everyone, we report the price elasticity of demand as a positive number (the absolute value).
If the price elasticity of demand is greater than 1, then we say that demand is elastic and that means that consumers are pretty sensitive to price changes.
If the price elasticity of demand in greater than one, then we say that demand in unit elastic (the percentage change in the quantity demanded is exactly equal to the percentage change in the price).
If the price elasticity of demand is less than one, then demand is price inelastic and that means that consumers are not very sensitive to price changes.
One reason we care about the price elasticity of demand is because there is a relationship between price elasticities and revenues collected. If demand is inelastic, an increase in the price will increase revenues. If demand is elastic, a similar percentage increase in the price will decrease revenues. The reverse is also true.
This is why we see goods with elastic demand (furniture, groceries, clothing) going on sale more than goods with inelastic demand (gas, liquor).
So what does this mean for the sugary drink example above?
Let's look at the numbers (and make some assumptions). The tax imposed on sugary drinks is $0.015 per ounce. For a 12 ounce soda (pop?) that's an increase in the price of $0.18. To make the math easy let's say a 12 ounce soda costs $0.50 ($3.00 a six pack?) before the tax. An $0.18 increase in the price is a 36% increase in the price. That's pretty big.
How much does the quantity demanded react. If grocery stores are to be believed, the quantity demanded fell between 30% and 50% in reaction to the tax increase. That means the elasticity of demand is between 0.83 (30/36) and 1.39 (50/36).
So it looks like demand is slightly inelastic to elastic.
Now we can ask question like:
If the goal is to raise tax revenues, will an increase in the tax increase, or decrease tax revenues?
Tax revenues will increase if demand is inelastic and decrease if demand is elastic.
If the goal is to decrease sugar consumption, how effective will an increase in the sugar tax be?
It looks like consumers might be price sensitive, so an increase in the tax might be pretty effective at reducing sugary drink consumption
WJZ out of Baltimore, Maryland has a cool time lapse video of the impact that Oysters can have on water clarity in the Chesapeake Bay watershed. Here's the story:
The Oyster Recovery Partnership in Maryland is trying to spread the word about the natural filtration powers of oysters.
The organization posted a time lapse video Tuesday that shows how oysters can clean water.
“The magic of oysters is the magic of filtration,” the post says. “Take an oyster, plant it in a viable habitat, and in time it can filter as much as 50 gallons of water a day. Plant thousands of oysters, and you can significantly improve water quality and clarity. Their effectiveness is so impressive, in fact, that many experts consider a thriving population to be vital to the lifeline of the Chesapeake Bay. Both of these tanks were filled with water and algae from the Severn River in Maryland. The tank on the left holds 20 mature oysters. Time lapse was five hours.”
"...we estimate the coastal population in [Maryland, Virginia, Delaware, New Jersey and North Carolina] willingness to pay for a 10,000 acre oyster sanctuary with 1,000 acres of constructed oyster reef to be at least $14.91 per household per year with a median estimate of $86.86 per household per year. Aggregating to the general population, we estimate the non-use value of a ten year oyster reef project, consisting of 10,000 acres of oyster sanctuary and 1,000 acres of artificial reef to be at least $114.95 million."
The cost is estimated to be about $15m.
According to Trumponomics, restoration costs money.
Ideas should be judged by their quality, not their pedigree. I am not usually a fan of Republican tax policy proposals or environmental initiatives. But I strongly support the proposal put forward Wednesday by Republicans George Shultz, James Baker, Martin Feldstein, Hank Paulson, Greg Mankiw and others for a substantial carbon tax in the United States to address global climate change. Their proposal that the carbon tax be coupled with a mechanism for rebates to consumers, a rollback of command-and-control regulation, and a border adjustment mechanism is also sound.
The United States has a moral and a prudential obligation to lead on global climate change. There would be no clearer sign of our commitment than the introduction of a substantial carbon tax. Our adoption of a carbon tax would encourage others to follow. The border adjustment mechanism would be a further inducement since foreign countries would presumably prefer their carbon emitters pay them than pay us. And because a carbon tax is easy to change it would enable us to be responsive to new developments in the science of global climate change.
Some of my friends may not completely agree, but I think the replacement of command-and-control regulation with a carbon tax is a positive step. It will reduce uncertainty and thereby encourage investment. Raising carbon prices has the virtue of discouraging all types of carbon use, be it from power production or transportation, from changing fuels or reducing energy use. It is therefore likely an efficient way to reduce emissions. Of course the devil is in the details and, as the authors point out, the tax has to be set high enough to reduce emissions at least as much as any repealed regulations.
I also think that the proposal for a lump sum rebate that gives an equal amount to all citizens is a very sound one. Since a person with a $2 million income gets no more than a person with a $20,000 income, it is highly progressive. It reminds me of Alaska’s approach of sharing oil revenue equally with all citizens. I think that the approach of not adjusting the income tax but instead declaring a social dividend also will operate to give people a stake in environmental protection because whenever the carbon tax is raised, people will get a larger and highly visible rebate.
It is hard to know how the Trump administration, which has flirted with climate denialism and has been less than embracing of traditional Republicans, will react to today’s proposal. I do know that they could change the way they are perceived in many parts of the world and by many well-intentioned Americans if they tried to run with it. It is also hard to know how Democrats will react. I hope they will seize on prominent Republican endorsement to take the largest steps on global climate change in our history and at the same time to achieve the most universal social benefit.
A group of prominent Republicans and business leaders pitched a tax on carbon dioxide to top White House aides Wednesday, selling the plan as an economic win that could drive job growth and yield environmental dividends too.
Former Secretary of State James Baker and other members of the new "Climate Leadership Council" pressed the case in a 45-minute meeting in the Roosevelt Room that included President Donald Trump’s top economic adviser Gary Cohn, Chief of Staff Reince Priebus and senior aide Kellyanne Conway.
"The signs were very encouraging," Ted Halstead, who founded the council, said after the meeting. "Two weeks into this new administration, we have positioned our solution as the most promising climate solution -- if they want to go there."
Baker also met briefly with Vice President Mike Pence, as the old-guard Republicans try to persuade the Trump administration that a carbon tax imposed in exchange for abolishing a slew of environmental regulations is an insurance policy against the risks of climate change.
"We know we have an uphill slog to get Republicans interested in this," Baker said before the White House meeting. But "a conservative, free-market approach is a very Republican way of approaching the problem."
President Trump jettisoned more than 30 years of bipartisan regulatory policy on January 30 when he issued an executive order on “Reducing Regulation and Controlling Regulatory Costs.” The order requires that whenever a new regulation is enacted by any federal agency, regulators must eliminate two rules, so that the cost of complying with the new rule is offset by the costs associated with the two existing rules. But Trump misses a crucial point about government regulations: They impose costs on society, but they also produce benefits.
The executive order refers to regulatory costs 18 times, but never mentions regulatory benefits. By focusing only on costs, the president’s order focuses on corporate bottom lines and ignores society’s bottom line. If an industry is profitable but releases pollution that makes people sick, then the best outcome for society may be to pass a regulation that lowers corporate profits slightly, but also reduces expensive health problems for thousands of Americans.
Are regulations costly for business? Yes. If they weren’t, then businesses wouldn’t need government rules requiring them to eliminate lead paint and other toxics from children’s toys, make workplaces safer and disclose their financial risks. Most companies would not take these steps on their own. The question is not whether regulations represent good business investments, but whether they yield a good return for society.
When government regulators write rules, they use benefit-cost analysis to compare the benefits and costs that the rules produce for society, much as corporate leaders weigh the costs of new business ventures against their expected returns. This approach was introduced under President Ronald Reagan in 1981 and continued under Presidents George H.W. Bush, Clinton, George W. Bush and Obama. ...
Instead of proposing to throw out existing regulations simply because some business leaders say that regulations are bad for business, it would make more sense for the Trump administration to identify what works and what doesn’t work from the perspective of all Americans. Then it could improve regulatory policy based on evidence, instead of arbitrary rules like “one in, two out.”
I have been writing essays at this blog for more than seven years, and until recently, through 100 essays, I tried very hard to keep politics at bay, and to view each and every issue I discussed from a politically neutral, yet analytical economic perspective.
But in October, 2016, as the U.S. presidential election approached, I found it difficult – for the first time – to remain neutral, and in a blog essay, “This is Not a Time for Political Neutrality,” I carefully explained why I feared what the consequences would be for the United States and the world if Donald Trump were elected president. I followed that up with a post-election essay in November, “What Does the Trump Victory Mean for Climate Change Policy?” (I am not providing hyperlinks to those essays at my blog’s website for reasons that will be clear as you read on.)
For anyone who harbored hopes that Mr. Trump would change as an individual after his inauguration and/or that a Trump administration would not be as terrible (in so many dimensions) as many of us feared, the first two weeks have shown that those concerns were fully justified.
So, I have been eager post a new essay, because the early days of the new administration have been very disturbing, along at least three dimensions:
First, the introduction (and the announcement of plans to introduce) public policies that are not simply conservative (which would be acceptable, given that the Republican candidate did win the election – no matter how problematic the methods of the campaign may have been). Rather, these policies come from the extreme “Alt-Right,” including its base of xenophobia, veiled racism, and unapologetic sexism. One, but only one set of these misguided policies has been in the area of my interest and expertise – environmental and natural resource policy, including climate change policy. The combined intentions of the Administration and the Congress to turn back so many environmental and natural resource policies, ranging from climate change to water pollution, deserve a full assessment (at my blog and elsewhere).
Second, there is the constant presence in the most important office in the land of an individual who – given that the nature of that office – should to be serving as a positive and inspiring role model for others, including our young people, but instead regularly displays the basest of human traits.
Third, and of greatest concern to me, this President and his Administration – with the tacit support (for the time being) of majorities in both houses of Congress – increasingly represents the greatest threat to American democracy I have witnessed in the past half-century. Gratuitous and unapologetic lies and distortions, total disregard – indeed, expressed contempt – for the division of powers that is so key to the endurance of the U.S. constitution, demonization of the essential role played by the news media, and much more – all of this combines to represent a threat to this republic unlike anything we have experienced in our lifetimes.
For all of these reasons, I have been eager to write yet another essay – focused on my area of expertise and experience – but shortly after posting my essays on Mr. Trump, my blog website was attacked and digitally contaminated with “malware,” as some of you know. I assume this is nothing more than a coincidence of timing, but it is a challenge nonetheless.
I’m pleased to say that emails directly from me and emails from my blog will present no problems whatsoever, but links to my blog website can produce automated warnings of the presence of malware. Our information technology people have been working very hard to clean the website thoroughly; and we are cautiously optimistic that this has now been accomplished. However, until Google, Firefox, and any other services have removed all warnings, I will cease from sending messages that would direct readers to the website.
So, I apologize for the recent hiatus in communications from “An Economic View of the Environment.” I would not want you to think that the reason for my silence is satisfaction with recent developments in environmental policy (and the larger body politic). Far from it! I hope to be back with essays – blog posts – in the very near future.
Budget cuts at the Environmental Protection Agency will strip 3,200 personnel of their jobs by the end of 1983, eliminating 30 percent of the agency’s 10,380 employees at a cost of $17.6 million just for severance pay.
The cuts are so massive that they could mean a basic retreat on all the environmental programs of the past 10 years, according to agency sources and administration critics. At the same time, divisions between Administrator Anne M. Gorsuch and career agency staff over her approach to policymaking have all but reached open warfare.
In response to President Trump’s executive order on reducing regulation, Richard Revesz, director of the Institute for Policy Integrity at NYU School of Law, has released the following statement: -- This “one in, two out” policy is a deeply flawed and irrational approach to regulation. Judging a regulation based solely on its costs, without considering benefits, is illogical. Yet the order makes no mention of accounting for a regulation’s benefits, which are often carefully quantified by the issuing agency. The executive order’s separate requirement that all regulations’ costs in a given fiscal year must sum to zero, regardless of their benefits, is similarly arbitrary and dangerous.
The wording of this executive order is likely to cause confusion and chaos. It is unclear how the order applies to new rules that federal agencies are legally required to issue, or how it will treat deregulatory actions. It is also unclear how the order asks agencies to weigh costs; some new regulations, such as energy efficiency rules, are projected to generate cost savings for consumers.
Since the Reagan administration, Presidents of both political parties have worked to improve the quality of federal regulatory decisionmaking. In particular, the Office of Information and Regulatory Affairs (OIRA) has promoted sophisticated analytical methods to ensure that regulations are properly vetted and that they will move forward only if their benefits to society justify their compliance costs.
Regulations help improve the quality of life for Americans: they ensure food safety, protect clean water, and make airplanes and cars safer. Making regulations more efficient and less costly is a worthy goal, but this executive order will not help achieve it. Instead, this order will likely hurt the American public and hinder the functioning of the government.
The Institute for Policy Integrity at New York University School of Law is a non-partisan think tank dedicated to improving the quality of government decisionmaking. The institute produces original scholarly research in the fields of economics, law, and regulatory policy; and advocates for reform before courts, legislatures, and executive agencies.
"This blog aims to look at more of the microeconomic ideas that can be used toward environmental ends. Bringing to bear a large quantity of external sources and articles, this blog presents a clear vision of what economic environmentalism can be."
Don't believe what they're saying
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