Suppose Erie Textiles Can Dispose of Its Waste "For Free

question 75

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 the 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 (in thousands of dollars) and losses for the three parties are listed below. $$\begin{array} { l r c } & \text { With Filter } & \text { Without } \\\text { Gains to Erie } & \$ 200 & \$ 400 \\\text { Fishermen } & \$ 180 & \$ 50 \\\text { Bird Watchers } & \$ 130 & \$ 25\end{array}$$
Refer to the information given above.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:

Mum Effect

The reluctance to communicate unfavorable news or feedback due to the fear of causing discomfort or facing negative repercussions.

Sender

The person or entity that initiates a message or communication.

Conscientious

Describes a person who is diligent, careful, and committed to doing their work or duties well.

Extraverted

Describing someone who is outgoing, socially confident, and thrives on interaction with others.