Scenario 18.1: It Is the Factory's Choice Whether to Install a Filter

question 65

Multiple Choice

Scenario 18.1:
It is the factory's choice whether to install a filter. It is the choice of the nearby fishermen whether to install a treatment plant. Dollar figures show profit. The factory and the fishermen can negotiate costlessly, and no one else is affected by the result.
Factory Fishermen
A: No filter or treatment plant $10,000 $2,000
B: Filter; no treatment plant $6,000 $10,000
C: No filter; treatment plant $10,000 $4,000
D: Filter; treatment plant $6,000 $6,000
-Refer to Scenario 18.1. What should the fishermen do if they know the factory will maximize profits and no negotiation is possible?

• A) Install a treatment plant.
• B) Do not install a treatment plant.
• C) It makes no difference if the fishermen do or do not install a treatment plant.
• D) Install a filter.
• E) Exit the industry.

---

Definitions:

Supply And Demand

Supply and demand is a fundamental economic model that describes how the availability of goods (supply) and the desire for them (demand) interact to determine market prices.

Currency

A system of money in common use, especially in a nation, defined by notes and coins that constitute the physical embodiments of a country's economic exchange medium.

European Sovereign Debt Crisis

A period of financial turmoil in the eurozone where several member countries faced rising government debts and bond yields, leading to bailouts and austerity measures.

Traditional Bond Markets

Financial markets where investors trade debt securities, typically issued by governments and corporations with fixed interest rates.