FIGURE 12-3

-Refer to Figure 12-3, which represents the market for pulp, the production of which creates dioxin emissions. Suppose the market is currently producing at the profit maximizing point and the government wishes to impose a tax to correct the overallocation of resources caused by the externality. How much revenue would the government receive?

Question

FIGURE 12-3
 
-Refer to Figure 12-3, which represents the market for pulp, the production of which creates dioxin emissions. Suppose the market is currently producing at the profit maximizing point and the government wishes to impose a tax to correct the overallocation of resources caused by the externality. How much revenue would the government receive?

Quizplus · Accepted Answer

The government would receive $8 million in revenue from the tax. This is calculated by multiplying the quantity of the tax (the difference between the socially optimal quantity and the profit-maximizing quantity) by the per unit tax necessary to correct the externality.

FIGURE 12-3 -Refer to Figure 12-3, Which Represents the Market for Pulp