Friday, July 18, 2014

The Economics of Plastic Bag

The Wall Street Journal has a really good article on the economics of plastic bags.  Specifically, we have an industry where an input (polyethylene) is about 70% the costs of plastic bags and that the supply of polyethylene is increasing due to increases in the supply of US natural gas production, and yet the price of polyethylene is also rising.  This could be due to differences in the price of producing natural gas from shale and fracking as opposed to traditional production - meaning that natural gas production costs are increasing as natural gas output increases.  Likewise we could have limited competition on the production of polyethylene, and this result in higher prices, or there could be different demands between the US and international markets (say due to higher competition) resulting in higher prices.  I do not have access to the data, but this does seem like a conundrum. 

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