Figure 5-9 Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5-9 illustrates the situation in the toilet paper market.
-Refer to Figure 5-9. Suppose the government wants to use a Pigovian tax to bring about the efficient level of production. What should the value of the tax be?

Question

Figure 5-9  Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5-9 illustrates the situation in the toilet paper market.
-Refer to Figure 5-9. Suppose the government wants to use a Pigovian tax to bring about the efficient level of production. What should the value of the tax be?

Quizplus · Accepted Answer

The Pigovian tax should be equal to the difference between the marginal external cost and the marginal private cost, which is (P2-P0) per unit of output.

Figure 5-9 Companies Producing Toilet Paper Bleach the Paper