Question

Assume you own and occupy a duplex. You live in one unit and rent out the other unit. You notice your tenant has a clogged drain on an almost monthly basis. You are responsible for paying for the plumber or for unclogging the drain yourself. You suspect your tenant is pouring bacon grease down the drain because you often experience the smell of frying bacon coming from her apartment. Despite your questioning, your tenant denies putting bacon grease down the drain. Using economic terms (for example, efficient, marginal benefit, marginal cost) describe a solution to this dilemma. Read the attached Wall Street Journal article. What is the external cost that some private citizens imposing on the public? Propose a solution which involves taxation. Whom is the tax imposed? Which group, buyers or sellers, will bear more of the cost of the tax? Why do you think so? Propose a solution, other than taxing, which might bring about a more economically efficient outcome. Explain what, if anything, you can foresee could go wrong with your proposal.

Answer 1

This dilemma can be solved by asking the tenants whether he is pouring grease or not. But we can also find another solution.

Let us first understand some economics concepts. First, we will see what does efficiency mean. Efficiency is of 2 types productive and allocative. to attain efficiency we must do best in both. then comes the concept of marginal benefit- the additional benefit arising from a unit increase in a particular business. In this case it the that is being spent to clear the clogged drain. the second is a marginal cost which means the cost added by producing one additional unit of a product.

In this case, the tax should be imposed on the tenant. why should the owner pay a price of the mistake of the tenant. In the rent agreement, a new clause should be included which would promise to repair the broken or clogged drain once. But if the similar pattern continues then the owner should take charge and impose tax tenant for clogging the drain again and again.

This extra levied tax would be an increase in the rent of the tennat which would make him more careful of repeating the same thing and also an additional income for the owner.