Use the figure below to answer the following questions.

Figure 16.2.1
-Refer to Figure 16.2.1. The figure shows the marginal private cost curve, the marginal social cost curve and the market demand curve. To promote an efficient allocation of resources, the government could impose a constant per unit tax equal to
A)zero.
B)P₁.
C)P₃ - P₁.
D)P₄ - P₁.
E)P₃ - P₂.

Question

Use the figure below to answer the following questions.
  
Figure 16.2.1
-Refer to Figure 16.2.1. The figure shows the marginal private cost curve, the marginal social cost curve and the market demand curve. To promote an efficient allocation of resources, the government could impose a constant per unit tax equal to
A)zero. 
B)P₁. 
C)P₃ - P₁. 
D)P₄ - P₁. 
E)P₃ - P₂.

Quizplus · Accepted Answer

The efficient allocation of resources occurs where the marginal social cost equals the market demand. The tax should equal the difference between the marginal social cost and the marginal private cost, which is P₃ - P₁.

Use the Figure Below to Answer the Following Questions