Final answer:
The correct answer is C) By imposing a tax on dry cleaning.A government can impose a tax on dry cleaning to bring production to the socially efficient level by ensuring that producers consider the external costs of pollution in their production decisions, leading to a reduction in quantity to where MSC equals MSB.
Step-by-step explanation:
How can a government use a tax on dry cleaning to bring about the efficient level of production? The correct answer is By imposing a tax on dry cleaning. When a government wants to address an inefficiency in the market, such as the externality of pollution from dry cleaning, it can impose a tax that reflects the extent of the negative externality. Assuming the tax is set equal to the externality, it effectively raises the cost of producing the good to include the external costs, which should lead to a reduction in production to the socially optimal level. The producers would then be incentivized to produce at a level where the marginal social cost (MSC) equals the marginal social benefit (MSB), thereby achieving the efficient level of production.