Figure 5-9 Companies Producing Toilet Paper Bleach the Paper to Make It

question 8

Multiple Choice

Figure 5-9

Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5-9 illustrates the situation in the toilet paper market.
-Refer to Figure 5-9.An efficient way to get the firm to produce the socially optimal output level is

• A)for government to set a quota on the quantity of toilet paper that the toilet paper industry can produce.
• B)to impose a tax to make the industry bear the external costs it creates.
• C)to grant a subsidy to enable the industry to internalize the external costs of production.
• D)to assign property rights to the firms in the industry.

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Definitions:

Price

Exchange value of a good or service.

Leverage

The use of borrowed funds or other financial instruments to increase the potential return of an investment.

Potential Return

The expected gain or loss from an investment, taking into consideration both the risk and the expected rate of return.

Shareholders

Shareholders are individuals or entities that own shares of stock in a corporation, giving them partial ownership and possibly rights to dividends and a say in company matters.