Suppose a Paper Mill Earns $1,000,000 in Profits When It

question 12

Multiple Choice

Suppose a paper mill earns $1,000,000 in profits when it pollutes a river,and it can abate pollution at a cost of $120,000.The effects of the pollution are confined to a single farmer who earns $400,000 if the water he uses from the river is clean,and $300,000 if it's polluted.Suppose there is no law preventing the firm from polluting the river.Which of the following describes an efficient outcome in this case?

• A) The owner of the mill is unable to pay the farmer enough to secure his permission to pollute the river.
• B) The farmer is unable to pay the owner of the mill enough to get him to stop polluting.
• C) The owner of the mill pays the farmer $110,000 for his permission to pollute the river.
• D) The farmer pays the owner of the mill $90,000 to stop polluting.

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Definitions:

Recall

The ability to retrieve and reproduce information or experiences from one's memory.

Laissez-Faire

An economic theory advocating minimal government intervention in the affairs of private businesses and individuals.

Moralizing

The act of expressing or teaching moral values, often involving making judgments about what is right or wrong behavior and imposing these standards on others.

Punishment

A consequence applied with the intention of reducing or eliminating an unwanted behavior, often employed in legal and educational contexts.