Suppose a farmer along Lake Lansing uses insecticides. The insecticide runs off into Lake Lansing causing it to become more polluted and increasing the growth of algae along the shoreline. Suppose the farmer's profits increase by $200 for each additional ton of fertilizer used until the farmer reaches 6 tons and then the profits do not increase at all if increase fertilizer use beyond 6 tons. Suppose the total cost (to people who live along the shoreline, use the beaches and fish) of different levels of fertilizer is given in the table below. (Note how difficult it would be to accurately measure this cost.) Unit of fertilizer 0 1 2 3 4 Total Cost $0 $50 $120 $240 $400

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question
1. Suppose a farmer along Lake Lansing uses insecticides. The insecticide runs off into Lake
Lansing causing it to become more polluted and increasing the growth of algae along the
shoreline. Suppose the farmer's profits increase by $200 for each additional ton of fertilizer
used until the farmer reaches 6 tons and then the profits do not increase at all if increase
fertilizer use beyond 6 tons. Suppose the total cost (to people who live along the shoreline,
use the beaches and fish) of different levels of fertilizer is given in the table below. (Note
how difficult it would be to accurately measure this cost.)
Unit of fertilizer
0
1
2
3
4
5
6
Total Cost
$0
$50
$120
$240
$400
$590
$800
a) Assuming transaction costs are zero, what would happen if the farmer is given property rights to
the lake? (Discuss how much fertilizer would be used and the transfer of money.)
b) Assuming transaction costs are zero, what would happen if the people who swim and fish in
Cayugu Lake are given property rights to the lake? (Discuss how much fertilizer would be used and
the transfer of money.)
c) What are the advantages of assigning property rights compared to taxation and regulation?
d) Why might assigning property rights not achieve the efficient/optimal outcome?
Transcribed Image Text:1. Suppose a farmer along Lake Lansing uses insecticides. The insecticide runs off into Lake Lansing causing it to become more polluted and increasing the growth of algae along the shoreline. Suppose the farmer's profits increase by $200 for each additional ton of fertilizer used until the farmer reaches 6 tons and then the profits do not increase at all if increase fertilizer use beyond 6 tons. Suppose the total cost (to people who live along the shoreline, use the beaches and fish) of different levels of fertilizer is given in the table below. (Note how difficult it would be to accurately measure this cost.) Unit of fertilizer 0 1 2 3 4 5 6 Total Cost $0 $50 $120 $240 $400 $590 $800 a) Assuming transaction costs are zero, what would happen if the farmer is given property rights to the lake? (Discuss how much fertilizer would be used and the transfer of money.) b) Assuming transaction costs are zero, what would happen if the people who swim and fish in Cayugu Lake are given property rights to the lake? (Discuss how much fertilizer would be used and the transfer of money.) c) What are the advantages of assigning property rights compared to taxation and regulation? d) Why might assigning property rights not achieve the efficient/optimal outcome?
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps with 1 images

Blurred answer
Knowledge Booster
Savings
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education