8. The effects of property rights on achieving efficiency Consider a lake found

Question

8. The effects of property rights on achieving efficiency Consider a lake found in the village of Sturbridge, and then answer the questions that follow. The village has a campground whose visitors use the lake for recreation. The village also has a cemical plant that dumps industrial waste into the lake. This pollutes the lake and makes it a less desirable vacation destination. That is, the chemical plant's waste decreases the campground's economic profit. Suppose that the chemical plant could use a different production method that involves recycling water. This would reduce the pollution in the lake to levels safe for recreation, and the campground would no longer be affected. If the chemical plant uses the recycling method, then the chemical plant's economic profit is $2,200 per week, and the campground's economic profit is $3,200 per week. If the chemical plant does not use the recycling method, then the chemical plant's economic profit is $3,000 per week, and the campground's economic profit is $2,000 per week. These figures are summarized in the following table Complete the following table by computing the total profit (the chemical plant's economic profit and the campground's economic profit combined) with and without recycling Profit Chemical Plant Campground Total (Dollars) 3,000 2,200 (Dollars) 2,000 3,200 (Dollars) Action No Recycling Recycling Total economic profit is highest when the recycling production method is When the chemical plant uses the recycling method, the campground ea not used -$2,000 1.200 more per week than it does with no recycling Therefore, the campground should be willing to pay up to $1,200 per we used hemical plant to recycle water. However, the recycling methood

Explanation / Answer

1) Total Profit from No Recycling = 3000 + 2000 = 5000

2) Total profit from Recycling = 2200 + 3200 = 5400

3) Used

4) not use the Recycling method ; pay between $ 800 and $ 1200

5) use the Recycling method; between $ 800 and $ 1200

6) It has property right to pollute the lake

7) False

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