Scenario: The following figure shows the private cost and social cost of producing Good X. Firm A is the producer of Good X. The production plant and Bob's house are located next to a river. However, the plant is upstream, and Bob's house is downstream. Since production pollutes the river, Bob suffers from a negative externality. MSC S * D Price Quantity 1) Refer to the scenario above. If the property rights to the river belong to the firm, what is the maximum transfer between the two parties necessary to make the firm produce the socially optimal quantity?(Use the letters to indicate the regions) A payment of from A payment of 2) Refer to the scenario above. If the property rights to the river belong to the firm, what is the minimum transfer between the two parties necessary to make the firm produce the socially optimal quantity? (Use the letters to indicate the regions) to from to
Scenario: The following figure shows the private cost and social cost of producing Good X. Firm A is the producer of Good X. The production plant and Bob's house are located next to a river. However, the plant is upstream, and Bob's house is downstream. Since production pollutes the river, Bob suffers from a negative externality. MSC S * D Price Quantity 1) Refer to the scenario above. If the property rights to the river belong to the firm, what is the maximum transfer between the two parties necessary to make the firm produce the socially optimal quantity?(Use the letters to indicate the regions) A payment of from A payment of 2) Refer to the scenario above. If the property rights to the river belong to the firm, what is the minimum transfer between the two parties necessary to make the firm produce the socially optimal quantity? (Use the letters to indicate the regions) to from to
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 40P: Show the market for cigarettes in equilibrium, assuming that there are no laws banning smoking in...
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