Scenario: a Chemical Factory Is Located Upstream on a River

question 24

Multiple Choice

Scenario: A chemical factory is located upstream on a river. The factory dumps its liquid waste into the river. A microbrewery is located downstream on this river; it uses the river water in its production process and values the clean water. The chemical factory can filter its liquid waste before dumping it into the river, but it would be costly to the factory. The table below shows the profit to these two businesses under different circumstances.

-Refer to scenario above.Suppose the microbrewery has the right to clean water.What would the Coase Theorem suggest as the resolution of this negative externality conflict between these two firms?

• A) The microbrewery pays $200 to the chemical factory to filter its waste before dumping it into the river.
• B) The chemical factory voluntarily filters its waste before dumping it into the river.
• C) The chemical factory pays $200 to the microbrewery to get permission to dump into the river.
• D) The chemical factory pays $300 to the microbrewery to get permission to dump into the river.

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Definitions:

Cognitive Demands

The mental effort required to complete a task or process information.

Emotional Labour

Emotional labour refers to the process of managing one's feelings and expressions based on the emotional requirements of a job, often involving the suppression or induction of certain emotions.

Pay

The earnings given to an individual by an employer or client in return for their work or services, often specified as an hourly wage or salary.

Positive Emotions

Feelings that are generally uplifting and pleasant, such as joy, gratitude, serenity, interest, hope, pride, amusement, inspiration, awe, and love.