Ch 3, q2. Suppose we have a small inhabited island with three residents and a volcano thatgenerates air pollution. Two people live upwind of the volcano and one person lives down-wind. For $21,000 we can clean up the volcano with a patented "smoke guzzler". The twoupwind people would pay $1000 each to get rid of the smoke whereas the downwind personwould pay $15,000. Consider two plans to finance the "smoke guzzler". Plan A calls for ahead-tax of $7000. Plan B calls for the affected party (the downwind person) to pay $21,000and everyone else nothing. Compare each plan to the status quo and indicate society's choiceusing (a) the Pareto criterion; (b) majority rule; (c) potential Pareto improvement.

Answered: Ch 3, q2. Suppose we have a small…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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