Figure 11-11 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 11-11 illustrates the situation in the toilet paper market.
-Refer to Figure 11-11.Let's suppose the government imposes a tax of $50 per tonne of toilet paper to bring about the efficient level of production.What happens to the market price of toilet paper?

Question

Figure 11-11  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 11-11 illustrates the situation in the toilet paper market.
-Refer to Figure 11-11.Let's suppose the government imposes a tax of $50 per tonne of toilet paper to bring about the efficient level of production.What happens to the market price of toilet paper?

Quizplus · Accepted Answer

The tax increases the cost of production for producers, which leads to a decrease in the supply of toilet paper. As a result, the price of toilet paper increases, but not by the full amount of the tax. The size of the price increase will depend on the elasticity of demand and supply. If demand is relatively elastic, the price increase will be less than the amount of the tax.

Figure 11-11 Companies Producing Toilet Paper Bleach the Paper