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:

Begging Frequencies

The rate at which offspring, particularly in birds, vocalize or display behaviors to request food from their parents.

Ground-nesting Warblers

Birds that belong to the warbler group and build their nests on the ground rather than in trees, adapting certain behaviors to protect their eggs and young from predators.

Begging Frequencies

The rate or pattern at which offspring request or demand resources from their parents, often observed in bird species.

Adaptation

The process by which organisms adjust to new environments or to changes in their current environment, enhancing survival and reproduction.