Figure 15.9 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 15.9 illustrates the situation in the toilet paper market.
-Refer to Figure 15.9.Suppose the government imposes a tax of $60 per ton of toilet paper to bring about the efficient level of production.What happens to the market price of toilet paper?

Question

Figure 15.9  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 15.9 illustrates the situation in the toilet paper market.
-Refer to Figure 15.9.Suppose the government imposes a tax of $60 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

When a tax is imposed on producers, their cost curve shifts upwards by the amount of the tax. As a result, the market price increases but by a lesser amount than the tax. In this case, the market price of toilet paper will rise by less than $60, because the supply is relatively elastic in the short run, and producers will absorb some of the tax burden by decreasing their profit margin.

Figure 159 Companies Producing Toilet Paper Bleach the Paper to to Make