Figure 4-21

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 4-21 illustrates the situation in the toilet paper market.
-Refer to Figure 4-21.Let's suppose the government imposes a tax of $50 per ton of toilet paper to bring about the efficient level of production.What happens to the market price of toilet paper?

Question

Figure 4-21
  
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 4-21 illustrates the situation in the toilet paper market.
-Refer to Figure 4-21.Let's suppose the government imposes a tax of $50 per ton of toilet paper to bring about the efficient level of production.What happens to the market price of toilet paper?

Quizplus · Accepted Answer

With the imposition of the tax of $50 per ton of toilet paper, the cost of production for the companies increases. Hence, the supply curve shifts upwards by $50. As a result, the new equilibrium price will be higher than the initial price but less than $50 higher. Therefore, the market price of toilet paper will rise by less than $50.

Figure 4-21 Companies Producing Toilet Paper Bleach the Paper to Make It