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:

Consequential Damages

In a contract, foreseeable damages that result from special facts and circumstances arising outside the contract itself. The damages must be within the contemplation of the parties at the time the breach occurs. Also called special damages.

Remedial Damages

Compensation aimed at remedying or compensating for a harm or injury suffered by the plaintiff, often used interchangeably with compensatory damages in a different context.

Substitute Goods

Products or services that can be used in place of each other, where an increase in the price of one leads to an increase in demand for the other.

Identical Goods

Products that are exactly the same in every aspect, including quality, appearance, and functionality.