Final answer:
To achieve efficient resource allocation matching social marginal cost with market demand, the government could impose a tax equal to P3 - P1, where P3 represents the socially optimal price and P1 is the market equilibrium price without intervention.
Step-by-step explanation:
To promote an efficient allocation of resources where the social marginal cost curve intersects with the market demand curve, the government could impose a constant per unit tax that would adjust the price and quantity to reflect the true cost to society. In economics, an efficient allocation of resources occurs when the price of a good reflects its marginal costs, including externalities.
In the scenario described, where the regulator sets the quantity of output at the point where marginal cost crosses the demand curve, and the price equals marginal cost (point C), the tax needed to move the market towards this point would be the difference between the price consumers are willing to pay and the price that reflects the marginal cost of producing the fuel-efficient cars. Theoretically, this tax would equal P3 - P1, where P1 is the price at the market equilibrium without government intervention and P3 is the price that includes the social marginal cost.
Therefore, a per-unit tax equal to the difference between these two prices would internalize the external costs and encourage production and consumption levels that lead to a socially optimal outcome.