Paul Owns a Mushroom Farm

question 72

Multiple Choice

Paul owns a mushroom farm.The smell from the farm reduces the value of adjacent houses by a total of $30 000.Suppose that the benefit of the mushroom farm to Paul is $20 000.Assuming that Paul has the legal right to own the farm, a possible private solution to this problem is that:

• A)adjacent property owners pay $20 000 to Paul to stop farming mushrooms
• B)Paul pays the adjacent property-owners $25 000 for their loss in house-values
• C)adjacent property owners pay $25 000 to Paul to stop farming mushrooms
• D)there is no private solution that would improve this situation

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Definitions:

Yield To Maturity

The total return anticipated on a bond if it is held until the due date, considering all interest payments and the capital gain or loss.

Semiannually

Occurring twice a year; a term often used to describe the frequency of interest payment, dividends, or other financial events.

Fisher Formula

An equation used in economics and finance that describes the relationship between nominal interest rates, real interest rates, and the inflation rate.

Real Rate

is the interest rate adjusted for inflation, reflecting the true cost of borrowing or real yield on an investment.