Refer to the graph below,where MB is marginal benefit and MSB is marginal social benefit. Assuming there is a marginal external cost equal to the tax shown in the graph,the per-unit tax necessary to induce consumers to purchase the efficient quantity each year is
A) $1.
B) $2.
C) $3.
D) $4.
E) $5.

Question

Refer to the graph below,where MB is marginal benefit and MSB is marginal social benefit.  Assuming there is a marginal external cost equal to the tax shown in the graph,the per-unit tax necessary to induce consumers to purchase the efficient quantity each year is
A) $1. 
B) $2. 
C) $3. 
D) $4. 
E) $5.

Quizplus · Accepted Answer

The efficient quantity is where MSB=MC (or MB=MC, since there are no other costs or benefits involved in this scenario). At this quantity, the market price is $6. However, due to the marginal external cost, the true cost of production is $8. Thus, a tax of $2 per unit (the difference between $8 and $6) will shift the supply curve up by $2, which will lead to the efficient quantity being produced and consumed. Therefore, the answer is choice B.

Refer to the Graph Below,where MB Is Marginal Benefit and MSB