(Solved): Suppose the figure to the right illustrates the market for toilet paper, where \( S_{1} \) represen ...

Suppose the figure to the right illustrates the market for toilet paper, where \( S_{1} \) represents the marginal private cost of production and \( D_{3} \) represents the marginal private beneft from consumption. Companies that produce toiet paper bleach the paper to make it while Some paper plants discharge the bleach into rivers and lakes, causing substantial environmental damage. Assume that \( S_{2} \) represents the marginal social cost of producing toilet paper (incorporating the externaliyy). What coould the government do to internalize tho extemality? In the presence of a negative externalty, the governmant could tollet paper production In particular, the government should set a Pigovian tax of 4 Eer ton of tollet paper produced.