When Domestic Production Causes Domestic Pollution
(Figure 12.4)

The country's government could avoid the loss that results by placing a tax on pollution from paper production. If there is no way to reduce pollution per ream produced, then the tax should add $0.30 per ream to the firms' cost of production. The domestic supply curve shifts up by the amount of the tax, to Sd + $0.30. Press "Show supply shift" to show this shift in the supply curve on the graph. This new supply curve now reflects all social costs, both the private production costs and the external pollution costs.
Press "Continue" when you are ready to move on. The "Reset" button will clear the graph.