Figure 4-11 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 4-11 illustrates the situation in the toilet paper market.
-Refer to Figure 4-11.Suppose the government wants to use a Pigovian tax to bring about the efficient level of production.What should the value of the tax be?

Question

Figure 4-11  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 4-11 illustrates the situation in the toilet paper market.
-Refer to Figure 4-11.Suppose the government wants to use a Pigovian tax to bring about the efficient level of production.What should the value of the tax be?

Quizplus · Accepted Answer

The Pigovian tax should be equal to the marginal external cost, which is the vertical distance between the social cost curve (SC) and the supply curve (S1U1B10). This is equal to (PS1U1B12S1U1B0-PS1U1B10S1U1B0) per ton of output. Therefore, choice B is the correct answer.

Figure 4-11 Companies Producing Toilet Paper Bleach the Paper