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Elasticity Concept Applied to Landfill Project

Local governments that operate their own landfills face a trade-off. Landfills are unpopular and officials worry about filling them up too fast. Once filled, the politically undesirable task of what to do with new garbage comes to the fore. Should it be shipped out of the region, angering those who are the recipients? Or, should a new local landfill be sited, thus angering those residents (i.e., constituents) nearby? At the same time, landfills are a significant revenue generator for the local government. Officials want to take in enough garbage to cover the costs of the landfill and even make a profit. In setting prices for tipping fees (the charges for dumping garbage in a landfill) officials in a large metropolitan area, called Plentiful ran into economics as a factor against unrestrained policy making.

It all started two years ago when officials in Plentiful decided to increase the tipping fees at their Raw End landfill from $19.00 per ton to $40.00 per ton. In response, haulers diverted between 25 percent to 30 percent of the garbage (about 5,000 tons of trash per day) collected in the City of Plentiful to out-of-region facilities. Using a higher price, the City extended the landfills operating life (i.e., lowered the rate at which the landfill would be exhausted).

Two years later, the City of Plentiful is faced with a fiscal crisis and decides that it wants its garbage back. The sanitation department proposes to lower the tipping fee to $25.00, which would result in bring back 3,500 tons of garbage back to the city's landfill each day.

If you were in charge of the budget for the City of Plentiful, would you lower the tipping fee? Explain.

Solution Preview

Given the information, this will be the scenario:

Price ($) Ton of garbage Revenue $ (Price x tons of garbage)
$19 20,000 $ 380,000.00 (This is the original quantity of garbage flowing into the city.)
$40 15,000 $ 600,000.00 (The 15,000 tons is 20,000 minus 25%[20,000]).
$25 18,500 $ 462,500.00 ...

Solution Summary

This solution describes a local government with a landfill project facing a decision whether to increase or decrease the tipping fee.

$2.19