Eco Tour operates a hiking trip in a forest, resulting in destruction of the trees in the forest. This reduces the income of Woody who rely on chopping trees in the forest and sell firewood for a living. The trees will be able to recover if Eco Tour were to reduce the number of hiking trips. Assume there is no negotiation cost between Woody and Eco Tour. The payoff to both parties with current and reduced operations of Eco Tour is shown in the table below: Income Eco Tour Woody SINGAPORE UNIVERSITY OF SOCIAL SCIENCES Eco Tour maintain current operations $3,000 $1,200 Eco Tour reduces operations $1,600 $2,800 (a) Explain how the social optimal outcome can be achieved if Woody has the right to a damaged-free forest. (b) How will your answer be affected if Eco Tour has the right to organize hiking trips and not liable for any damages to the forest?

Eco Tour operates a hiking trip in a forest, resulting in destruction of the trees in the forest. This reduces the income of Woody who rely on chopping trees in the forest and sell firewood for a living. The trees will be able to recover if Eco Tour were to reduce the number of hiking trips. Assume there is no negotiation cost between Woody and Eco Tour. The payoff to both parties with current and reduced operations of Eco Tour is shown in the table below: Income Eco Tour Woody SINGAPORE UNIVERSITY OF SOCIAL SCIENCES Eco Tour maintain current operations $3,000 $1,200 Eco Tour reduces operations $1,600 $2,800 (a) Explain how the social optimal outcome can be achieved if Woody has the right to a damaged-free forest. (b) How will your answer be affected if Eco Tour has the right to organize hiking trips and not liable for any damages to the forest?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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