\"Suppose we have an agricultural valley 100km by 50km, with a polluting electri
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Question
"Suppose we have an agricultural valley 100km by 50km, with a polluting electricity power plant. The power plant causes pollution problems on a narrow strip of land downwind of the plant, and within this valley 10km in length and 500 m in width, but no problem outside that area. The total effect of pollution is to make crop land less productive. If we were to clean up the pollution, would we expect land prices to increase? Where? Would we expect wages to decline? Would the changes inland prices and/or wages filly reflect the benefits pf cleaning up pollution? Why or why not?”
Explanation / Answer
In order to clean up the pollution, land price should be increased.
The price of the land relating to power plant (10 Km × 500 m) needs to be increased.
Because of paying higher land price, the owner of power plant might not have sufficient money in hand for other expenses; causing wages to decline.
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