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Figure 1 illustrates the unregulated market for a pesticide When factories produce pesticide, they also create waste which they dump into a lake on the edge of the town The marginal external cost

Figure 1 illustrates the unregulated market for a pesticide. When factories produce pesticide, they also create waste, which they dump into a lake on the edge of the town. The marginal external cost of the dumped waste is equal to the marginal private cost of producing the pesticide (that is, the marginal social cost of producing the pesticide is double the marginal private cost).

1. What is the quantity of pesticide produced if no one owns the lake and what is the efficient quantity of pesticide? What is the deadweight loss?

2. If the town owns the lake, what is the quantity of pesticide produced and how much does the town charge the factories to dump waste?

 3. If the pesticide factories own the lake, how much pesticide is produced?

 4. If no one owns the lake and the government levies a pollution tax, what is the tax per ton of pesticide that achieves the efficient outcome

Jun 03 2020 View more View Less

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