Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter27: Investment, The Capital Market, And The Wealth Of Nations
Section: Chapter Questions
Problem 13CQ
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Question
Now suppose that the government has to intervene in the production of the good (rice) for there is a reason to believe (as community clamors it) that the production is causing pollution in the community. With the intervention, the local government decided to impose a tax (Pigouvian tax) on the polluters (a tax per unit of the good produced). Use the figure below to answer the following:
A. What is the value of the tax?
B. Calculate Pigouvian tax revenue as a result of this tax levied on producers.
Transcribed Image Text:Suppose that the private marginal cost for a product's (rice) consumption is
given by the MB curve (or MB = 360 – 4Q) and the private marginal cost
associated with its production is given by the MPC curve (or MC = 6Q). The
diagram is presented below.
P ($)
360*
MPC
320+
280+
240+
216
200+
160+
120+
80+
40+
MB
10
20
30
40
50
60
70
80
90
Q per year
Transcribed Image Text:P ($)
MРC + tax
360
MPC
320
280-
240
216
200
185
160
120
80
40
MB
+
10
30
40
50
60
70
80
90
Q per year
20
+
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