Suppose Erie Textiles Can Dispose of Its Waste "For Free

question 15

Multiple Choice

Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river. While the firm benefits from dumping waste into the river, the waste reduces fish and bird reproduction. This causes damage to local fishermen and bird watchers. At a cost, Erie Textiles can filter out the toxins, in which case local fishermen and bird watchers will not suffer any damage. The relevant gains and losses (in thousands of dollars) for the three parties are listed below.  
Suppose you observe that Erie has not added a filter. You could conclude that the Coase theorem failed to solve the externality problem because:

• A)Erie's benefits to operating without a filter are greater than the benefits of a filter to the fishermen and bird watchers.
• B)negotiation with many individual fishermen and bird watchers was too costly.
• C)Erie has a property right to the river.
• D)regulators prevent application of the Coase theorem when the environment is at stake.

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Definitions:

Assign Partnership Interest

The transfer of a partner's ownership interest in a partnership to another party, subject to the terms of the partnership agreement.

Ceases to Be a Partner

Occurs when an individual no longer holds the status of a partner in a partnership, possibly due to withdrawal, expulsion, or agreement termination.

General Partner

A type of owner in a partnership who is responsible for the operations of the company and is liable for its debts.

Statutory Provisions

Laws or regulations enacted by a legislative body that must be followed by individuals and entities subject to its jurisdiction.