Question

8. The effects of property rights on achieving efficiency Consider a lake found in the village of Sturridge, and then answer the questions that follow. The village has a hiking lodge whose visitors use the lake for recreation. The village also has a research lab that dumps Industrial waste into the lake. This pollutes the lake and makes it a less desirable vacation destination. That is, the research lab's waste decreases the hiking lodge's economic profit. Suppose that the research lab could use a different production method that involves recycling water. This would reduce the pollution in the lake to levels safe for recreation, and the hiking lodge would no longer be affected. If the research lab uses the recycling method, then the research lab's economic profit is $1,500 per week, and the hiking lodge's economic profit is $1,800 per week. If the research lab does not use the recycling method, then the research lab's economic profit is $2,000 per week, and the hiking lodge's economic profit is $1,000 per week. These figures are summarized in the following table

Answer 1

No recycling : total = 3,000

Recycling : total = 3,300

Total economic profit is.......... Used

Suppose the hiking lodge............ Use....... $ 0 per week

Now suppose the research lab........... Use.......... Between $ 500 and $ 800 per week

The research lab......... It has the right to pollute the lake

The reaserch lab will use......... False