A Paper Mill That Degrades River Water While Producing Its

question 11

Multiple Choice

A paper mill that degrades river water while producing its product creates a divergence between private and social costs if,and only if,the

• A) mill treats the water to restore its quality before returning it to the river.
• B) mill dumps the degraded water back into the river, for which privilege it pays a high levy to towns downstream.
• C) price of the paper produced there includes the cost of water treatment.
• D) mill treats the water to restore its quality, for which service it is appropriately compensated by the towns downstream.
• E) water is dumped back into the river in an untreated state with no compensation paid to downstream users.

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Definitions:

Basis Risk

Risk attributable to uncertain movements in the spread between a futures price and a spot price.

Short Hedger

An investor who enters into futures contracts to protect against potential price declines in an asset they hold.

Futures Price

The agreed-upon price for the sale/purchase of an asset at a future date, as determined in a futures contract.

Metals

Elements that are typically hard, shiny, malleable, fusible, and ductile, with good electrical and thermal conductivity, used in a wide range of industrial and decorative applications.