Question

1. Consider a plant that pollutes lead into the drinking water of a small town. The town is con- sidering a couple of interventions (i.e. taxation versus regulation) to address this problem. However, they are uncertain about the firm’s cost of reduction. Provide a solution to this problem. How does the policy instrument affect efficiency when cost are unknown.

2. If Eliza is currently willing to trade 4 loaves of bread for 1 gallon of milk, then she must like loaves of bread better than gallons of milk? Why or why not?

Answer 1

ANS.

PLANT POLLUTES LEAD IN TO DRINKING WATER OF A SMALL TOWN WHICH IS A SERIOUS MATTER. TOWN IS CONSIDERING A COUPLE OF INTERVENTION LIKE TAXATION AND REGULATION.

TAXATION WILL INCREASE THE BURDEN ON THE FIRM RESULT IN INCREASE IN COST

OF FIRM . BUT THIS WOULD PRESS THE FIRM TO IMPLEMENT THE MEASURE TO CURB THE POLLUTION. THIS ALSO RESULT IN CUT IN PROFITABILITY OF THE FIRM.

REGULATION INVOLVES THE MEASURE TO CONTROL THE POLLUTION AND IMPLEMENT THE MEASURE TO TREAD THE RESIDUE SO THAT IT WILL NOT POLLUTE THE WATER OF TOWN.

BOTH MEASURE INCLUDE INCREASE OF COST TO FIRM IN FINANCIAL TERMS BUT IF WE MEASURE BY ETHICAL AND HUMANITY IT WOULD BE FAR MORE BENEFICIAL TO FIRM AS IT WOULD BENEFIT THE PEOPLE BY HEALTH AND HELP IN RECEIVING BLESSING

SOMETIME BLESSING ARE MORE THAN FINANCIAL BENEFIT

ANS. IF ELIZA HAD MORE MILK THAN ONE GALLON AFTER FULFILING   HIS REQUIREMENT

THAN SHE CAN CONSIDER TO TAKE FOUR LOAVES OF BREAD FOR ONE GALLON OF MILK