3. Suppose the marginal damage and marginal benefit curves in a polluted neighborhood are MDP /3 and MB = 4P. Also, suppose that transactions costs are low, so that the neighborhood residents and the firm can bargain. We saw that in this case, the socially optimal level of pollution is achieved. Start by computing the socially optimal P. Then, for each of the following cases, compute the amount of money transferred through the bargaining process, and indicate who pays whom (i.e., whether consumers pay the fi rm, or vice versa). Also, compute the gains to each party relative to the status quo (i.e., the starting point of the bargaining process). (a) Residents have the right to clean air; fi rm is dominant in the bargaining process. (b) Residents have the right to clean air; residents are dominant in the bargaining process. (c) Firm has the right to pollute; fi rm is dominant in the bargaining process. (d) Firm has the right to pollute; residents are dominant in the bargaining process.

3. Suppose the marginal damage and marginal benefit curves in a polluted neighborhood are MDP /3 and MB = 4P. Also, suppose that transactions costs are low, so that the neighborhood residents and the firm can bargain. We saw that in this case, the socially optimal level of pollution is achieved. Start by computing the socially optimal P. Then, for each of the following cases, compute the amount of money transferred through the bargaining process, and indicate who pays whom (i.e., whether consumers pay the fi rm, or vice versa). Also, compute the gains to each party relative to the status quo (i.e., the starting point of the bargaining process). (a) Residents have the right to clean air; fi rm is dominant in the bargaining process. (b) Residents have the right to clean air; residents are dominant in the bargaining process. (c) Firm has the right to pollute; fi rm is dominant in the bargaining process. (d) Firm has the right to pollute; residents are dominant in the bargaining process.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter13: Positive Externalities And Public Goods

Section: Chapter Questions

Problem 24P: Assume that the marginal private costs of a film producing fuel-efficient can; is greater than the...

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