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

Question

8. The effects of property rights on achieving efficiency Consider a river found in the city of Philadelphia, and then answer the questions that follow The city has a campground whose visitors use the river for recreation. The city also has a chemical plant that dumps industrial waste into the river. This pollutes the river 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 river to evels 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 $2,500 per week, and the campground's economic profit is $2,500 per week. If the chemical plant does not use the recycling method, then the chemical plant's economic profit is $2,800 per week, and the campground's economic profit is $1,700 per week. These figures are summarized in the following table.

Explanation / Answer

All blanks are correct except the last blank.

The chemical plant will make the most economic profit when it has the property right to pollute.

1. Total profit = 2800 + 1700 = 4,500

Total profit = 2500 + 2500 = 5,000

2. used

3. chemical firm will reduce pollute and pay $ 0

4. use recycling method and receive amount between 300 to 800

5. it has the property right to pollute

6. False

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