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 hiking lodge whose visitors use the lake for recreation. The village also has a chemical 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 hiking lodge'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 hiking lodge would no longer be affected. If the chemical plant uses the recycling method, then the chemical plant's economic profit is $2,000 per week, and the hiking lodge's economic profit is $2,700 per week. If the chemical plant does not use the recycling method, then the chemical plant's economic profit is $2,600 per week, and the hiking lodge's economic profit is $1,900 per week. These figures are summarized in the following table.

Explanation / Answer

A) Total profit when no recycling= 2600+1900= 4500

Total profit when recycling= 2000+2700= 4700

B) used.

C) not use recycling method

D) between $600 to $800

E) use the recycling method.

F) between $200 and $600.

G) it has property right to clean the lake

H) false.

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