The production of paper creates pollution, an external cost. What happens to the production of paper if the government imposes a tax on paper producers equal to the marginal external cost of the pollution?
What will be an ideal response?
When the government imposes a tax equal to the marginal external cost of the pollution, the production of paper decreases. Prior to the tax being imposed, the external cost was ignored by the producers because they did not pay this cost. However, once the tax is in place, the external cost now becomes a cost that the producer must pay. As a result, the producers' costs increase and so the supply of paper decreases.
You might also like to view...
The above table shows the marginal benefits and costs from production of fertilizer. There are no external benefits. If the market is perfectly competitive and unregulated, at the equilibrium output, the
A) marginal private cost exceeds the marginal private benefit. B) marginal private cost is less than the marginal private benefit. C) marginal social cost equals the marginal private benefit. D) marginal social cost is greater than the marginal private benefit.
If a 10% currency appreciation results in a 10% decrease in the price of imported goods, then this is called
A) a complete pass-through. B) the Marshall Lerner condition. C) a partial pass-through. D) import inflation.
The opportunity cost of going to college includes the costs of tuition, books, fees, and
a. nothing else b. housing c. housing and food d. earnings forgone by not working full-time e. housing, food, and earnings forgone by not working full-time
Net exports measures the:
A.) Total dollar value of U.S. exports. B.) Dollar amount of imports. C.) Quantity of goods produced abroad. D.) Dollar value of exports minus the dollar value of imports.