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

question 85

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
-In the case in Scenario 18.1, the Coase theorem specifies that:

• A) the result will be different if the fishermen are given the right to clean water than it will be if the factory is given the right to use the water as it sees fit, but the result will be inefficient in either case.
• B) the efficient result will occur whether the fishermen are given the right to clean water or the factory is given the right to use the water as it sees fit.
• C) economic efficiency requires that the fishermen be given the right to clean water.
• D) economic efficiency requires that no one may contaminate the water.
• E) economic efficiency requires that the fishermen be given the right to clean water and that the factory be given the right to use the water as it sees fit.

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Definitions:

Cent

A monetary unit in various countries, representing one-hundredth of the basic unit of currency.

Percent Rate

The percentage that indicates the rate of change or the rate applied to a specific financial calculation.

Base

(1) The quantity that is multiplied by itself in a power. (2) The initial amount to which a percent change is applied.

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