Figure 9.9 depicts a market for electricity. S1 is the supply curve without the external costs. S2 is the supply curve with the $T tax. Assume electricity production incurs external costs. If the government imposes the pollution tax in the amount illustrated, the amount of the pollution tax shifted forward on to consumers is:
A. PA - PB.
B. PA - PC.
C. PB - PC.
D. (1/2)?(PB - PC).
Answer: A
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