Answered: 1.Factory does not install scrubber,…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1.Factory does not install scrubber, Farmer uses south field Crop Damage ($= 120 Farmer cost ($=0 Factory Cost($=0 Social cost =120 2. Factory does not install scrubber, Farmer rents west field Crop Damage ($) = 50 Farmer cost ($=20 Factory Cost($=0 Social cost =70 3.Factory installs scrubber, Farmer uses south field Crop Damage ($) = 35 Farmer cost ($=0 Factory Cost ($=40 Social cost =75 4.Factory installs scrubber, Farmer rents west field Crop Damage ($=0 Farmer cost ($)=20 Factory Cost($=40 Social cost = 60 Now the farmer has a right to pollution abatement, creating a legal duty for the factory to install the scrubber (no additional crop damages will be paid if the factory fulfills the duty to install the scrubber). What is the factory's willingness to pay to continue polluting without the scrubber? Why? Now the farmer has a right to pollution abatement, creating a legal duty for the factory to install the scrubber (no additional crop damages will be paid if the factory fulfills the duty to install the scrubber). What is the farmer’s willingness to accept to allow the factory to not install the scrubber? Why? Under the property rule where the farmer has a right to pollution abatement, consider the factory's willingness to pay and the farmer's willingness to accept in Questions 9 and 10. Again, suppose that there are no transaction costs for negotiation. Will the parties negotiate and reach an agreement to allow the factory to not install the scrubber? Explain why or why not. If they do not reach an agreement, which action each party will take and is the outcome is efficient? Which type of dispute resolution consistently reached the socially efficient outcome in this situation, the liability rules or the property rules with bargaining? What general principle from economics does this illustrate? In the scenarios we used to analyze this problem, we made several assumptions to reach our conclusions. A. Which assumptions are not likely to be met in the real world and why? B. Why is this private negotiation and liability analysis useful? Please answer each part in 2-4 complete sentences using the economic and legal concepts from class material.

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