-Refer to Figure 15-9. 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?
A) It rises by $50.
B) It rises by more than $50.
C) It rises by less than $50.
D) It remains the same because the tax is imposed on producers who create the externality.

Question

-Refer to Figure 15-9. 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?
A) It rises by $50. 
B) It rises by more than $50. 
C) It rises by less than $50. 
D) It remains the same because the tax is imposed on producers who create the externality.

Quizplus · Accepted Answer

The market price typically rises by less than the full amount of the tax because the tax burden is shared between producers and consumers, depending on the elasticities of supply and demand.