-The table above describes the market for paper. The production of paper produces pollution. There are no external benefits. What amount of tax per ton of paper is necessary to produce the efficient quantity of paper?
A) $60
B) zero
C) $40
D) $100

Question

-The table above describes the market for paper. The production of paper produces pollution. There are no external benefits. What amount of tax per ton of paper is necessary to produce the efficient quantity of paper?
A) $60 
B) zero 
C) $40 
D) $100

Quizplus · Accepted Answer

The efficient quantity of paper is produced when the marginal social cost (MSC) equals the marginal benefit (MB). The MSC is the marginal private cost (MPC) plus the marginal external cost (MEC). The MEC is the cost of the pollution caused by producing an additional ton of paper. In this case, the MEC is $40. Therefore, the tax per ton of paper necessary to produce the efficient quantity of paper is $40.

-The Table Above Describes the Market for Paper