C) Consider the markets for plastic and paper bags in one of the European countries - Italy. These markets are highly competitive, so, to simplify exposition, let us model them as perfectly competitive ones. On the 1st of January 2011, Italian government has banned any sales of non-recyclable plastic bags. Illustrate the consequences of this decision for the plastic bag market, assuming that demand for recyclable plastic bags is exactly the same, but they are much more costly to produce.

d) Illustrate the consequences of Italian government's decision on the paper bag market. e) Did the ban of non-recyclable plastic bags necessarily increase social welfare? Use your graphs from (c) and (d) to prove your point. For simplicity, assume that (i) there are no externalities associated with production of plastic bags and (ii) there are no externalities associated with consumption of paper bags.