The Production of Paper Creates Pollution, an External Cost

question 361

Essay

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?

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Definitions:

Tuition

The fee charged for instruction or education, typically by an educational institution such as a school or university.

Disposable Personal Income

Funds available to families for saving or spending after subtracting income taxes.

Retained Earnings

The portion of net income that is kept by a company rather than distributed to its shareholders as dividends, used for investment or paying off debt.

Social Insurance Contributions

Payments made to social security systems by employers, employees, or the self-employed, used to fund public programs such as pensions, unemployment benefits, and health care.