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 unit 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 unit of toilet paper to bring about the efficient level of production.What happens to the market price of toilet paper?

Quizplus · Accepted Answer

When the government imposes a tax on toilet paper, the cost of production increases for producers. As a result, the supply curve shifts upward, causing the market price to increase. However, the tax may not fully offset the external costs of production since it is only $50 per unit. Therefore, the price will rise by less than $50 per unit.

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