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. Suppose the following graph illustrates the situation in the toilet paper market.

Explain how the federal government can use a tax on toilet paper to bring about the efficient level of production. What should be the value of the tax?

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Price (per ton of toilet paper) S2 = marginal social cost S, = marginal private cost $150 125 100 Demand Quantity (tons of toilet paper produced per week) 350,000 450,000