1. Suppose a farmer along Lake Lansing uses insecticides. The insecticide runs off into LakeLansing causing it to become more polluted and increasing the growth of algae along theshoreline. Suppose the farmer's profits increase by $200 for each additional ton of fertilizerused until the farmer reaches 6 tons and then the profits do not increase at all if increasefertilizer use beyond 6 tons. Suppose the total cost (to people who live along the shoreline,use the beaches and fish) of different levels of fertilizer is given in the table below. (Notehow difficult it would be to accurately measure this cost.)Unit of fertilizer0123456Total Cost$0$50$120$240$400$590$800a) Assuming transaction costs are zero, what would happen if the farmer is given property rights tothe lake? (Discuss how much fertilizer would be used and the transfer of money.)b) Assuming transaction costs are zero, what would happen if the people who swim and fish inCayugu Lake are given property rights to the lake? (Discuss how much fertilizer would be used andthe transfer of money.)c) What are the advantages of assigning property rights compared to taxation and regulation?d) Why might assigning property rights not achieve the efficient/optimal outcome?

Given , Profits of Farmer increase by 200 for each ton , So total profit for 6 unit of fertilizers…

Suppose a farmer along Lake Lansing uses insecticides. The insecticide runs off into Lake Lansing causing it to become more polluted and increasing the growth of algae along the shoreline. Suppose the farmer's profits increase by $200 for each additional ton of fertilizer used until the farmer reaches 6 tons and then the profits do not increase at all if increase fertilizer use beyond 6 tons. Suppose the total cost (to people who live along the shoreline, use the beaches and fish) of different levels of fertilizer is given in the table below. (Note how difficult it would be to accurately measure this cost.) Unit of fertilizer 0 1 2 3 4 Total Cost $0 $50 $120 $240 $400

Suppose a farmer along Lake Lansing uses insecticides. The insecticide runs off into Lake Lansing causing it to become more polluted and increasing the growth of algae along the shoreline. Suppose the farmer's profits increase by $200 for each additional ton of fertilizer used until the farmer reaches 6 tons and then the profits do not increase at all if increase fertilizer use beyond 6 tons. Suppose the total cost (to people who live along the shoreline, use the beaches and fish) of different levels of fertilizer is given in the table below. (Note how difficult it would be to accurately measure this cost.) Unit of fertilizer 0 1 2 3 4 Total Cost $0 $50 $120 $240 $400

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter12: Environmental Protection And Negative Externalities

Section: Chapter Questions

Problem 11SCQ: The state of Colorado requires oil and gas companies who use fracking techniques to retune the land...

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Two important industries on the island of Bermuda are fishing and tourism.According to data from the Food and Agriculture Organization of the United Nationsand the Bermuda Department of Statistics, in 2009 the 306 registered fishermen inBermuda caught 387 metric tons of marine fish. And the 2,719 people employed byhotels produced 554,400 hotel stays (measured by the number of visitor arrivals).Suppose that this production point is efficient in production. Assume also that theopportunity cost of 1 additional metric ton of fish is 2,000 hotel stays and that thisopportunity cost is constant (the opportunity cost does not change).a. If all 306 registered fishermen were to be employed by hotels (in addition to the2,719 people already working in hotels), how many hotel stays could Bermudaproduce?
3. A chemical factory discharges waste product into a river. The waste kills many salmon that are swimming upstream to spawn. While there will no doubt be other ecological damages from the chemical effluent, let's focus on those of fishery. Let E be tonnes of chemical effluent discharged per month. Then the marginal damage to fishery (measured in the terms of lost salmon stock) is MD = 8E. The chemical factory can reduce its effluent flows by treating its waste products. Its marginal abatement cost function is given by MAC = 800 – 10E. (a) Compute socially efficient equilibrium. (b) How does the liability for damages affect pollution level? Will the chemical factory change its emission levels in response to liability laws? (c) Will liability system automatically lead this polluter to a socially effi- cient level of emission (as calculated in a)? (d) Now, consider that the chemical factory has the right to use the river however it wants. It does not have to pay any compensation to…
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Assume the following: (1) three people go to a restaurant, (2) each person orders a soda for P2 and the group of three orders a large pizza to share for a price of P12 and (3) a fourth person joins the group and orders one soda and is invited to share in eating the pizza. Which of the following statements is false? a. The cost of the fourth person’s soda will be P2. b. The total cost of the four sodas consumed by the group is P 8. c. When the fourth person joined the group the total cost of the large pizza increased to P 16. d. When the fourth person joined the group the average pizza cost per person dropped to P3.
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