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Extended Essay 2020

Economics

Research Question
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To what extent is the plastic consumption in Indonesia harming the diving industries in Bali?
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Word Count : 3506

Citation Format : MLA 8
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Table of Contents

1. Introduction
➢ 1.1 Background Information​ ​ ​Page 3-4
➢ 1.2 Significance of the topic ​ ​Page 4-6

2. Methodology ​Page 6-7

3. Economic Theory
➢ 3.1 Externalities ​ ​ Page 6
➢ 3.2 Economic Hypothesis ​ Page 8
➢ 3.3 Plastic as a negative externality in Bali ​Page 9-10
➢ 3.4 Plastic as a positive externality in Bali ​Page 10-11

4. Presentation of data ​ Page 11

5. Conclusion ​ ​Page 11-12

6. Evaluation and Errors ​Page 12-13

7. Works Cited ​Page 14-15

8. Appendices ​ Page 16
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1. Introduction

1.1 Background Information

Indonesia is the largest archipelago in the world. It consists of five major islands and about 30

smaller archipelagos. Its made up of 17,508 islands of which about 6000 are inhabited.1 Indonesia is

also known to have one of the world’s most diverse range of cultures, on top of having a fast-growing

economy, which creates an intricate harmony between tradition and economic development in the

country. However, despite this, Indonesia is the world's second-largest contributor of plastic

pollutants, after China.2 Bali is one of the more populated and popular Indonesian islands, attracting

around 6.5 million tourists last year, which was a 10% increase from 2017. 3 The Indonesian

Archipelago is blessed with some of the world’s most spectacular underwater splendor. Filled with an

abundance of fascinating sea creatures, colorful coral reefs, thousands of tropical islands fringed with

sparkling white beaches scattered among crystal clear blue waters, there is no doubt that Indonesia

must be the world’s ultimate dive destination.4 Scuba diving is an experience that allows you to

explore this beautiful underwater world, meaning there should ideally always be a demand for this

activity. There are several areas in Bali that have been developed as a maritime tourism attraction, and

some of those areas are Tanjung Benoa, Sanur, Candidasa, Tulamben, Nusa Penida, and Pemuteran.

Also like most things in Bali, visitors are spoilt for choice when it comes to finding a dive school or

operator. There are over 130 accredited dive operators which can be found around Bali, adhering to

1
​“Facts & Figures.” ​Embassy of the Republic of Indonesia | Washington D.C.​, 2018,
www.embassyofindonesia.org/index.php/basic-facts/​.
2
​Investments, Indonesia. “Indonesia Investments.” ​Indonesia,​ 9 Apr. 2019,
www.indonesia-investments.com/news/todays-headlines/environmental-pollution-indonesia-s-battle-against-pla
stic-waste/item9110​.
3
“Bali's Tourism Numbers Exceed Targets in 2018.” ​Gapura Bali,​ Williams Media, 30 Jan. 2019,
www.gapurabali.com/news/2019/01/30/balis-tourism-numbers-exceed-targets-2018/1548819004​.
4
​“INDONESIA, The Most Popular Dive Destination 2017 : Dive Magazine.” ​The Official Website of Indonesia
Tourism - Wonderful Indonesia,​ 7 Mar. 2018,
www.indonesia.travel/gb/en/news/indonesia-the-most-popular-dive-destination-2017-dive-magazine​.
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industry standards on staff training, safety procedures (including decompression) and up-to-date

equipment.5

So throughout this extended essay, I will explore the research question“To what extent is the

plastic consumption in Indonesia harming the diving industry in Bali?”. I will look into the different

spillover effects that plastic creates on third parties like the Balinese diving industry and the general

environment. I will also conduct extensive research into the Balinese dive industries and help

determine whether or not the negative externalities of plastic consumption in Indonesia is heavily

affecting diving industries in both the short-run and the long-run. Nevertheless, the overuse of plastic

and increase rubbish is bound to be a massive drawback to the diving industries since the waters are

being heavily polluted and tourist may rethink their decision. An example of where the negative

externalities of plastic consumption could affect diving industries in Bali would be the destruction of

marine ecosystems due to the abundance of plastic waste in the sea around Bali, desecrating the

beautiful oceanic landscapes in which these diving industries depend on in order to make a living in a

competitive economic structure.

1.2 Significance of Topic

I chose this topic for my extended because growing up in Bali I have watched the

environment around me rapidly evolve into this thriving tourist destination, but at the same time, I

have also witnessed the island transform from an ecological paradise into a heavily polluted island, in

which it would be impossible to walk down the street without spotting any plastic bottles or other

various types of waste material. Also being a surfer I am exposed to all the plastic that ends up in our

waters due to Indonesia's high plastic consumption. And to be honest it seems like plastic has already

been affecting Bali’s land and sea. This topic is significant because if nothing is done to reduce the

consumption, situations in Bali will only get worse and eventually all the industries may suffer.

5
​SanctumDive, and Tripfuser. “A Comprehensive Guide to Bali Diving.” ​Tripfuser Travel Blog - Hand Crafted
by Local Experts,​ 4 Sept. 2018, ​www.tripfuser.com/blog/bali-diving/​.
 5

However, recently this year Bali’s governor ​I Wayan Koster​ implemented a new ban across the island,

which bans single-use plastic bags, polystyrene and plastic straws, where the single-use plastic bags

will be banned in supermarkets, convenience stores and shopping centres.6 The ban was successful

due to the famous ‘Bye Bye Plastic Bag’ campaign which has now gained global recognition, where

the Bye Bye Plastic Bag movement is active in 18 countries.7

This topic is also significant because it may also lead to Bali’s beaches to be closed for

several months or more like how the Philippines closed there famous resort island of Boracay in 2018

for 6 months because the waters were becoming too polluted due to the high number of tourists

coming to the island. So the government wanted to work on environmental rehabilitation so the

Philippines wouldn't lose such a beautiful island.8 Another example of this happening is Thailand,

where at the moment the country has closed down there famous Maya Bay until 2021 because there

were too many tourists and trash building up which ​had severely damaged the environment.9 So by

knowing about Boracay and Maya Bay closing there beaches this topic becomes very significant,

since it could easily be applied to Bali one day if the situation gets out of hand. Thus, by looking into

Bali’s dive industries I believe I will be able to gain more knowledge on how severe the damage could

be to its industry and have a better understanding on just how close Bali could be to ending up like

Borcay or Maya Bay.

6
​Andy. “Bali Leads the Way and Officially Bans Single-Use Plastic Bags, Straws and Polystyrene across the
Island.” ​Gapura Bali,​ 25 June 2019,
www.gapurabali.com/news/2019/06/25/bali-leads-way-and-officially-bans-single-use-plastic-bags-straws-and-p
olystyrene​.
7
​Andy. “Kicking the Habit: How Is Bali Coping with No Plastic Bags?” ​Gapura Bali,​ 23 Jan. 2019,
www.gapurabali.com/news/2019/01/23/kicking-habit-how-bali-coping-no-plastic-bags/1548209412​.
8
Aquino, Michael. “Why Boracay Is Closed for Tourism: Everything You Need to Know.” ​TripSavvy,​
TripSavvy, 26 June 2019, ​www.tripsavvy.com/boracay-philippines-island-closed-for-tourism-4165709​.
9
​“Thailand: Tropical Bay from 'The Beach' to Close until 2021.” ​BBC News,​ BBC, 9 May 2019,
www.bbc.com/news/world-asia-48222627​.
 6

2. Methodology

In order to find out whether or not, plastic consumption in Indonesia is affecting the Balinese

dive industries, the research stage is crucial because without it the essay would have no real meaning

or evidence to back up my claims. In my essay I used both primary and secondary resources because

through good primary research I will be able to gain direct access to the subject of my research, where

secondary resources ​provide me with second-hand information and commentary from other

researchers, which is usually biased. As a way of gaining my primary research I went out and

interviewed different dive companies around my area of sanur, where I asked a range of questions

related to my research question to help me collect evidence. (Please refer to appendix 1 to see the

interview questions) The secondary research I used came from news articles, journals, the IB

economics textbook, government websites and informative videos. From the news articles I was able

to gain general information regarding Bali and their issues with plastic, where Gapura Bali was my

main secondary resource for this. By using the IB economics textbook it helped me learn about the

economic theory needed in my essay and it helped me create all the diagrams needed. And by using

the government websites like my first footnote I was able to find statistics about Indonesia which were

from up to date, reliable and trustworthy since it was from the Embassy of Indonesia.

When it comes to collecting your research there are many things that need to be taken into

consideration in order for the research to be reliable and worth while, like if its within a five year

period or if the actual source is legitimate and established. So the limitations to my research is that

firstly, the news articles and journals, I used could be biased or modified in order to create controversy

so they can receive attention from their target viewers; thus, their facts and figures might not be 100%

reliable. Another limitation is that for the websites I couldn't find publication dates for they could be

articles which may be outdated, thus the information gained from that source may not be applicable to

the present day Bali. Lastly, when it came to conducting my interviews with the different dive

companies around sanur I realised that because none of the companies wanted to share data of the

number of customers they’ve had over the last 2 years they all could have easily just lied to me and
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said there numbers were increasing. And as I suspected most of them said they were increasing,

however being a lokal I know for a fact that some of them should be decreasing due to the competition

in the diving market.

3. Economic Theory

3.1 Externalities

In this essay, most of the economic theory will come from the fourth topic in the

microeconomic unit, topic 1.4 Market Failure. First of all, Market failure is when the production or

consumption of a good in the free market leads to a misallocation of society’s scarce resources in the

sense that there is either an overproduction or underproduction of a good, leading to a level that is not

socially optimal. In market failure there are externalities, an externality exists any time the production or

consumption of a good creates spillover benefits or costs on a third party not involved in the market. In

such cases, resources will either be under-allocated (positive externalities) or over-allocated (negative

externalities) towards the production of certain goods. 10 In addition to this essay, I will only be looking

into the different externalities which plastic consumption in Indonesia has created on Bali and more

specifically the diving industries in Bali. Within the walls of externalities, there are two different

externalities, positive and negative. Negative externalities is when the production or consumption of a

good creates spillover costs on a third party, which is often times the environment as a whole (known as

demerit goods). Positive externalities occur when ​the consumption or production of a good creates

benefits to a third party (known as merit goods).11

​Welker, Jason. “Introduction to Market Failure.” ​YouTube​, YouTube, 11 Nov. 2016,

10

www.youtube.com/watch?v=D6rP6aBCN4A&list=PLE7312C13EE8D984F​.

​Pettinger, Tejvan. “Positive Externalities.” ​Economics Help​, 10 July 2017,

11

www.economicshelp.org/micro-economic-essays/marketfailure/positive-externality/​.
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3.2 Economic Hypothesis

My research question is ‘​To what extent is the plastic consumption in Indonesia affecting the

diving industries in Bali?’​ If you were reading this research question for the first time you would

think that the answer must be obvious and the plastic consumption in Indonesia must massively be

affecting the dive industries across the island because Indonesia is the 2nd largest contributor to

plastic waste. However, I do not necessarily think this is the case. Bali’s tourism industry over the past

six decades, has been experiencing expansion and diversification, to an extent that it is becoming one

of the largest and the fastest economic sectors growing in the world.12 As a result of this, I hypothesize

that even though Indonesia has such high plastic consumption, the Balinese dive industries wouldn’t

suffer that much from the spillover effects because of Bali’s fast growing tourism economy. The dive

industries will only experience the spillover effects on the environment which were created by

Indonesia’s high plastic consumption.

12
​Antara , Made, and Made Sri Sumarniasih . “Role of Tourism in Economy of Bali and Indonesia.”
Journal of Tourism and Hospitality Management ​, vol. 5, no. 2, Dec. 2017, pp. 1–11.,
DOI:10.15640/jthm.v5n2a4.
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3.3 Plastic as a negative externality in Bali

In Bali there are many different ways plastic can be seen as a negative externality of

consumption because the plastic in Bali has created a wide range of spillover effects on third parties

such as, the environment, the ocean, the locals, the atmosphere, the wildlife and I would think the

tourism industry would be affected however the tourism industry has only been increasing over the

years. 13 In Bali you can see an example of how the plastic bag is a negative externality.

As you can see above there are two graphs. The graph on the left is a graph representing the

negative externalities of production. In the graph, you can see a green triangle, which represents the

welfare loss or the loss of total welfare resulting from the overabundance of plastic in the ocean.

There is welfare loss because at the equilibrium point the social cost exceeds the social benefit,

meaning there is too much plastic in the market and resources are being over-allocated, which can

lead to a market failure. Also, the marginal private cost (MPC) is greater than the marginal social cost

(MSC), the MPC will shift towards the MSC because that is the point where the plastic bag market

would be socially optimal. The graph on the right is a graph representing the negative externalities of

​“Bali's Tourism Numbers Exceed Targets in 2018.” ​Gapura Bali​, Williams Media, 30 Jan. 2019,
13

www.gapurabali.com/news/2019/01/30/balis-tourism-numbers-exceed-targets-2018/1548819004​.
 10

consumption. Once again the green triangle represents the welfare loss. There is a welfare loss in this

market because once again there is a over-production of plastic bags. As the graph on the left, the

equilibrium quantity (Qe) is greater than the socially optimal quantity (Qso), which means the

resources are over-allocated towards the plastic bag market by the free market, which is also known as

a market failure.

Also, the marginal private benefit (MPB) of plastic bag is greater than the Marginal Social

Benefit (MSB). The MPB demand curve wants to shift towards the MPB demand curve because at

that demand the cigarette market is socially optimal. In addition to the private cost of producing

plastic bags, there are also significant external costs in using plastic bags environmental costs, litter,

damage to wildlife, use of plastic / oil in the production of bags. Therefore, the social marginal cost of

plastic bags is greater than the private marginal cost. Therefore, it is not worth them charging.

However, if you include all the external costs of plastic bags, the social cost is much greater.14

3.4 Plastic as a positive externality in Bali

Even though the majority of the plastic consumption spillover effects are negative. In Bali

there is always a market for something meaning because people are always able to try and please other

markets they are able to think of ways to benefit off the fast growing island. In Bali some poor

communities are able to benefit from from scavenging off the plastic waste that's dumped in there

area. Some locals saying “I have three kids — all of them go to university, and all that was possible

thanks to my hard work scavenging rubbish to sell of bits of plastic.” a 52-year-old Balinese man

explains.15

Pettinger, Tejvan. “There's No Such Thing as a Free Plastic Bag.” ​Economics Help​, 30 Sept. 2015,
14

www.economicshelp.org/blog/14665/economics/theres-no-such-thing-as-a-free-plastic-bag/​.

15
France-Presse, Agence. “Foreign Trash 'Like Treasure' in Indonesia's Plastics Village.” ​Foreign Trash 'Like
Treasure' in Indonesia's Plastics Village,​ 20 Aug. 2019,
www.courthousenews.com/foreign-trash-like-treasure-in-indonesias-plastics-village/​.
 11

Also because there is so much harm being done to Bali’s coral, oceans and some of the

Balinese dive industries it has made the Balinese government intervene to try to reduce the overall

consumption as mentioned previously. Out of ever wrong you can always try to find a positive out of

it and the positive of plastic in Bali is that the consumption and production of plastic has caused the

government to implement bans on plastic bags, styrofoam and plastic straws. This could be considered

as a positive externality because the production and consumption of plastic has resulted in ​benefits

being created on a third party.

4. Presentation of data

To gather my primary research about dive industries I went out

According to a study done by the Udayana University in bali about the economic impact of the whole

diving tourism in Tulamben and Pemuteran approximately ranges from US$ 396.4 million to US$

1.059.7 million per year. The high economic value achieved by the government and the local

communities as a whole indicates a significant increase of diving activities in both areas. 16

5. Conclusion

To conclude my extended essay, I discovered that the Balinese dive industries is indeed suffering as a

result of the negative externalities of plastic consumption as well as production, but only suffering in

terms of experiencing lots of plastic waste in there waters during dives in the rainy seasons. Despite

being able to answer my research question, the reality of the situation in which Bali islanders and

tourists find themselves in when plastics pollute the island’s waters does not seem to change at all in

the long-run. However, the Balinese government can implement some economic policies in order to

help reduce the extent to which the negative externalities of plastic production and consumption is

16
​Suardana, I Wayan, et al. “The Impact of Direct Expenditures of Diving Tourism towards the
Economy of Coastal Balinese.” ​Udayana Journal of Social Sciences and Humanities​, Sept. 2017,
ojs.unud.ac.id/index.php/UJoSSH/article/view/35794.
 12

affecting its welfare. I believe the Balinese government should use supply side policies and implement

quotas and bans to limit plastic production so that the Balinese economy won’t be as heavily burdened

due to the negative externalities caused by both plastic production and consumption. Policies that

primarily affect AD are known as demand-side policies: These include most fiscal policies, such as

changes in tax rates or the level of government spending. They also include monetary policies, which

either raise or lower interest rates to stimulate or reduce the level of consumption or investment (both

components of AD).

Policies that primarily affect AS are known as supply-side policies: Supply-side policies can fall into

one of two sub-categories:

○ “Interventionist” policies: These include government-led programs

such as the provision of infrastructure, subsidies for research and development and

the provision of job-training programs or support for public or private education

aimed at increasing the skills of the nation’s workforce.

○ “Market-based” policies: These are measures aimed at reducing the

role of government in the economy, which should allow the market to function more

efficiently and for output to return more quickly to its full employment level

following shocks to AD or AS. They include reductions in government benefits for

the unemployed or poor, reduction or elimination of a minimum wage, reduction of

trade union power, deregulation of industries, reduction in business tax rates,

liberalized trade and any other policies that make producing goods cheaper and more

efficient for businesses.

6. Evaluation and Errors

However, plastic waste in the ocean is not the only limitation that they would be currently

experiencing. There are other factors, such as beaches being shut down, natural disasters, and season
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changes that affect the welfare of the dive industries and the overall Bali . That being said, evaluating

the welfare of the dive industries and the economy based on just how the plastic waste is affecting

them is inaccurate as these other factors may change how the economy actually is.
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7. Works Cited

Andy. “Bali Leads the Way and Officially Bans Single-Use Plastic Bags, Straws and Polystyrene
across the Island.” ​Gapura Bali​, 25 June 2019,
www.gapurabali.com/news/2019/06/25/bali-leads-way-and-officially-bans-single-use-plastic-bags-str
aws-and-polystyrene​.

Andy. “Kicking the Habit: How Is Bali Coping with No Plastic Bags?” ​Gapura Bali,​ 23 Jan. 2019,
www.gapurabali.com/news/2019/01/23/kicking-habit-how-bali-coping-no-plastic-bags/1548209412​.

Aquino, Michael. “Why Boracay Is Closed for Tourism: Everything You Need to Know.” ​TripSavvy,​
TripSavvy, 26 June 2019,
www.tripsavvy.com/boracay-philippines-island-closed-for-tourism-4165709​.

“Bali's Tourism Numbers Exceed Targets in 2018.” ​Gapura Bali,​ Williams Media, 30 Jan. 2019,
www.gapurabali.com/news/2019/01/30/balis-tourism-numbers-exceed-targets-2018/1548819004​.

“Facts & Figures.” ​Embassy of the Republic of Indonesia | Washington D.C.,​ 2018,
www.embassyofindonesia.org/index.php/basic-facts/​.

France-Presse, Agence. “Foreign Trash 'Like Treasure' in Indonesia's Plastics Village.” ​Foreign Trash
'Like Treasure' in Indonesia's Plastics Village​, 20 Aug. 2019,
www.courthousenews.com/foreign-trash-like-treasure-in-indonesias-plastics-village/​.

Investments, Indonesia. “Indonesia Investments.” ​Indonesia​, 9 Apr. 2019,

www.indonesia-investments.com/news/todays-headlines/environmental-pollution-indonesia-s-battle-a
gainst-plastic-waste/item9110​.

Menon, Ramesh. “Plastic Pollution Threatens Tourism Dependent Bali.” ​Down To Earth,​ 6 Dec.
2018,
www.downtoearth.org.in/blog/environment/plastic-pollution-threatens-tourism-dependent-bali-62408​.

Pettinger, Tejvan. “Positive Externalities.” ​Economics Help,​ 10 July 2017,

www.economicshelp.org/micro-economic-essays/marketfailure/positive-externality/​.

Pettinger, Tejvan. “There's No Such Thing as a Free Plastic Bag.” ​Economics Help​, 30 Sept. 2015,
www.economicshelp.org/blog/14665/economics/theres-no-such-thing-as-a-free-plastic-bag/​.

​Santi, Faurani, Rina Oktaviani, Dedi Budiman Hakim, and Reni Kustiari. "TOURISM
INVESTMENT , SUPPLY AND DEMAND IN INDONESIA: IMPACT AND FACTOR
ANALYSIS." ​Media.neliti​. Doctorate Program in Economic Agriculture, Institut Pertanian Bogor,
Bogor, Indonesia, 2013.
 15

<​https://media.neliti.com/media/publications/171536-EN-tourism-investment-supply-and-demand-in.
pdf​>.

SanctumDive, and Tripfuser. “A Comprehensive Guide to Bali Diving.” ​Tripfuser Travel Blog - Hand
Crafted by Local Experts​, 4 Sept. 2018,​ ​www.tripfuser.com/blog/bali-diving/​.

Suardana, I Wayan, et al. “The Impact of Direct Expenditures of Diving Tourism towards the
Economy of Coastal Balinese.” ​Udayana Journal of Social Sciences and Humanities​, Sept. 2017,
ojs.unud.ac.id/index.php/UJoSSH/article/view/35794.

“Thailand: Tropical Bay from 'The Beach' to Close until 2021.” ​BBC News,​ BBC, 9 May 2019,
www.bbc.com/news/world-asia-48222627​.

Welker, Jason. “Introduction to Market Failure.” ​YouTube,​ YouTube, 11 Nov. 2016,

www.youtube.com/watch?v=D6rP6aBCN4A&list=PLE7312C13EE8D984F​.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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8. Appendices

Appendix 1​ - Interview questions for the diving companies

1. When you are on your dive trips where are the most plastic consumed locations?
2. Do you notice any trash or plastic interfering with you and customers during dive sessions?
3. Do you think plastic is harming your business or could potentially harm it in the future?
4. During a dive trip has there ever been a time where you needed to change dive sites because it
was too polluted?
5. Is it possible to know how many customers you had 2 years ago and whether or not you
believe the number of your customers have been decreasing?
6. If they are decreasing, what do you think the cause is?
7. When are the low and high seasons for [Dive company]?
8. Have you ever had any complaints related to too much plastic in the water which left
customers unhappy?
9. Do you know any connections with someone who could further my research?
10. How has the diving industry changed over the years in terms of amount of customers and
pollution in the water?
11. Do you know what is being done to educate people about the plastic problem in Indonesia?