Regulation is necessary when transactions costs are low enough to allow bargaining between a polluter and a victim

In a budget line/indifference curve diagram, at the consumer equilibrium

A) any movement upward or downward on the budget line will move the consumer to a less preferred point. B) any movement to the northeast to higher indifference curves moves the consumer to a less preferred point. C) the slope of the budget line is as much larger as possible than the marginal rate of substitution. D) All of the above statements are correct.

In the above figure, to achieve the efficient amount of paper production, the government could impose a tax of

A) $2 per ton. B) $8 per ton. C) $26 per ton. D) zero, because the efficient amount is produced with no government intervention.