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. Let's suppose the government imposes a tax of $50 per unit of toilet paper to bring about the efficient level of production. What happens to the market price of toilet paper?

Question

Quizplus · Accepted Answer

The market price of toilet paper rises by less than $50 per unit because the tax burden is typically shared between producers and consumers. The actual increase in market price depends on the elasticity of demand and supply; it is not usually equal to the full amount of the tax.

Companies Producing Toilet Paper Bleach the Paper to Make It