Question

 

A) Imagine a company working in a perfectly competitive market for pumpkin seeds. If the government were to enforce a per unit subsidy on the goods sold and everything else remained unchanged. Over the longer-term, the number of companies in market will stay the same, however production will increase for each company.

b) In the 80s to 90s harmful acidic deposition/rain was an environmental threat. It was a result of contamination through vehicles and dangerous fumes. The Coase Theorem is relevant within this matter as sometimes negotiating can result in a socially optimal outcome, specifically no acidic disposition/rain

Answer 1

A) It is true that, If the government were to enforce a per unit subsidy on the goods sold and everything else remained unchanged. Over the longer-term, the number of companies in market will stay the same, however production will increase for each company. This is because with the provision of o'er unit subsidy the average and marginal cost of the firms in the industry decreases. With decrease in cost market supply increases and hence price falls but less than the subsidy and hence output increases. Now firms will produce more than what they produced before in the long run.

B) It is true that In the 80s to 90s harmful acidic deposition/rain was an environmental threat. It was a result of contamination through vehicles and dangerous fumes but now it has decreased to a very large extent. But it can't be surely said that, The Coase Theorem is relevant within this matter as sometimes negotiating can result in a socially optimal outcome, specifically no acidic disposition/rain. Though it is true that coase theorem talks about negotiations which results in socially optimal outcome but it can't ensure that there will be no acid rain as it talks about the compensation paid for the negative externalities and can't ensure the complete removal of externality to achieve socially optimal outcome.