1. The farmer takes the rancher to court and the judge decides putting up a fence is the farmer's responsibility. What is the nature of the externality in this problem? A. the rancher is putting a $1000 cost on the farmer that he is not internalizing. B. the farmer is putting a $1000 benefit on the rancher that is not internalized. C, the rancher is putting a$1500 cost on the farmer that he is not internalizing. D. there is no externality present because rights are defined. 2. After the court decision, will the farmer build a fence? A. Yes B. No C. The rancher will build the fence D. There is not enough information to say 3.. Suppose the judge ruled that the rancher is responsible for keeping the cows off the farmer's land. Will the rancher build the fence? A. Yes, he is required by law. B. Yes, because it is more efficient to put the fence up. C. No, he would pay the farmer $1,000 to compensate him for the damages to his crops. D. There is not enough information to say.

1. The farmer takes the rancher to court and the judge decides putting up a fence is the farmer's responsibility. What is the nature of the externality in this problem? A. the rancher is putting a $1000 cost on the farmer that he is not internalizing. B. the farmer is putting a $1000 benefit on the rancher that is not internalized. C, the rancher is putting a$1500 cost on the farmer that he is not internalizing. D. there is no externality present because rights are defined. 2. After the court decision, will the farmer build a fence? A. Yes B. No C. The rancher will build the fence D. There is not enough information to say 3.. Suppose the judge ruled that the rancher is responsible for keeping the cows off the farmer's land. Will the rancher build the fence? A. Yes, he is required by law. B. Yes, because it is more efficient to put the fence up. C. No, he would pay the farmer $1,000 to compensate him for the damages to his crops. D. There is not enough information to say.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Market Failure Analysis

To understand Market failure, we need to first understand welfare economics. An Italian economist, Vilfredo Pareto stated that allocation of resources in an efficient manner such that an economic change, which harms no one and makes someone better off, indicates an increase in social welfare. It is also called Pareto Optimality, where resources cannot further be reallocated without harming one. This does not apply to those economic changes, which harm some and benefit others. social welfare increases if the utility of any of its members' increases and none decrease in the economy.

Question

In his 1960 article, "The Problem of Social Cost," Ronald Coase uses an example of a rancher and a wheat farmer. The
problem comes from the rancher's cows crossing over onto the farmer's fields and trampling his crop. For the next
problems assume the damage to the farmer's crops is $1,000 a year and the cost of putting up/maintaining a fence is
$1,500 a year.
1. The farmer takes the rancher to court and the judge decides putting up a fence is the farmer's responsibility. What is the
nature of the externality in this problem?
A. the rancher is putting a $1000 cost on the farmer that he is not internalizing.
B. the farmer is putting a $1000 benefit on the rancher that is not internalized.
C. the rancher is putting a$1500 cost on the farmer that he is not internalizing.
D. there is no externality present because rights are defined.
2. After the court decision, will the farmer build a fence?
A. Yes
B. No
C. The rancher will build the fence
D. There is not enough information to say
3.. Suppose the judge ruled that the rancher is responsible for keeping the cows off the farmer's land. Will the rancher
build the fence?
A. Yes, he is required by law.
B. Yes, because it is more efficient to put the fence up.
C. No, he would pay the farmer $1,000 to compensate him for the damages to his crops.
D. There is not enough information to say.

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