Suppose the figure to the right illustrates the market for toilet paper, where S, represents the marginal private cost of production and D, represents the marginal private benefit from consumption. Companies that produce toilet paper bleach the paper to make it white. Some paper plants discharge the bleach into rivers and lakes, causing substantial environmental damage. Assume that S₂ represents the marginal social cost of producing toilet paper (incorporating the externality). What could the government do to internalize the externality? In the presence of a negative externality, the government could paper production. toilet In particular, the government should set a Pigovian tax of $ per ton of toilet paper produced. Price (per ton of toilet paper) 500 450 400- 350 300- 250- 200- 150 100 50 0 6 100 200 300 400 500 600 700 800 900 1000 Quantity (1000 tons of toilet paper produced per week) o S
Suppose the figure to the right illustrates the market for toilet paper, where S, represents the marginal private cost of production and D, represents the marginal private benefit from consumption. Companies that produce toilet paper bleach the paper to make it white. Some paper plants discharge the bleach into rivers and lakes, causing substantial environmental damage. Assume that S₂ represents the marginal social cost of producing toilet paper (incorporating the externality). What could the government do to internalize the externality? In the presence of a negative externality, the government could paper production. toilet In particular, the government should set a Pigovian tax of $ per ton of toilet paper produced. Price (per ton of toilet paper) 500 450 400- 350 300- 250- 200- 150 100 50 0 6 100 200 300 400 500 600 700 800 900 1000 Quantity (1000 tons of toilet paper produced per week) o S
Chapter1: Making Economics Decisions
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Transcribed Image Text:Suppose the figure to the right illustrates the market for toilet paper, where S,
represents the marginal private cost of production and D, represents the marginal
private benefit from consumption. Companies that produce toilet paper bleach the
paper to make it white. Some paper plants discharge the bleach into rivers and
lakes, causing substantial environmental damage. Assume that S₂ represents the
marginal social cost of producing toilet paper (incorporating the externality). What
could the government do to internalize the externality?
In the presence of a negative externality, the government could
paper production.
toilet
In particular, the government should set a Pigovian tax of $ per ton of tollet
paper produced.
Price (per ton of toilet paper)
500-
450
400-
350
300-
250-
200-
150-
100-
50
0
6 100 200 300 400 500 600 700 800 900 1000
Quantity (1000 tons of toilet paper produced per week)
o
G
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