2. Let the smoke emitted by a widget manufacturing plant is so bad that the welfare if people residing in the vicinity are being severely affected. The cost imposed on the people residing in the vicinity is estimated to be $ 100,000 while the value of production (smoke comes as a byproduct) for the plant is $ 120,000. a) Are too much, too little or the right number of widgets being produced? b) If the plant makes an offer of S 110,000 to the residents to compensate for the harmful smoke, can we conclude that the externality (if any) is internalized? c) If the plant makes an offer of S 110,000 to the residents to compensate for the harmful smoke, can we conclude that all the costs (or benefits) of the action are being considered?

2. Let the smoke emitted by a widget manufacturing plant is so bad that the welfare if people residing in the vicinity are being severely affected. The cost imposed on the people residing in the vicinity is estimated to be $ 100,000 while the value of production (smoke comes as a byproduct) for the plant is $ 120,000. a) Are too much, too little or the right number of widgets being produced? b) If the plant makes an offer of S 110,000 to the residents to compensate for the harmful smoke, can we conclude that the externality (if any) is internalized? c) If the plant makes an offer of S 110,000 to the residents to compensate for the harmful smoke, can we conclude that all the costs (or benefits) of the action are being considered?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter12: Environmental Protection And Negative Externalities

Section: Chapter Questions

Problem 11SCQ: The state of Colorado requires oil and gas companies who use fracking techniques to retune the land...

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