Suppose Erie Textiles Can Dispose of Its Waste "For Free

question 109

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:

Probability of the Statistic

The likelihood of observing a test statistic as extreme as, or more extreme than, the value observed under the assumption that the null hypothesis is true.

5%

A common significance level in statistical analysis, indicating that there is a 5% chance the observed results could have occurred by random chance, used to determine statistical significance.

Sample Size

Sample size refers to the number of observations or subjects used in a statistical study.

Research Hypothesis

Posits an expected causation, correlation, or difference between studied variables, formulated for scientific testing and verification.