Suppose that repeated application of a pesticide used on orange trees causes har

Question

Suppose that repeated application of a pesticide used on orange trees causes harmful contamination of groundwater. The pesticide is applied annually in almost all of the orange groves throughout the world. Most orange growers regard the pesticide as a key input in their production of oranges, (a) Use a diagram of the market for pesticide to illustrate the implication of a failure of orange producer's costs to reflect the social costs of grondwater contamination. (b)Use your diagram from part(a), to explain a government policy that might be effective in achieving the amount orange production that fully reflects all social costs.

MUST BE A DIAGRAM...thanks....will rate good

Explanation / Answer

1. the private cost is smaller than the social cost.
2. it needs Pigouvian taxes and environmental regulation to increase the private cost.But Based on Coase theorem, private compensation can be the way out without any government intervention.

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