Situation 1 : Firm A produces cement sifters. The process includes the melting o
ID: 1188582 • Letter: S
Question
- Situation 1: Firm A produces cement sifters. The process includes the melting of metals and chemicals which give the sifters strength. In the production process, waste is produced and released into the river that runs alongside of the plant.
- Situation 2: Some states allow students to attend certain universities within the state tuition free if they are a resident of that state. As a result of this policy, the state%u2019s population is more educated and more productive in the workplace than many other states.
- Situation 3: You live in a small subdivision with several residents. The subdivision has one short dirt road that provides access to all the homes. Bob, one of the residents of the subdivision, just inherited a large sum of money and decides to have the road in the subdivision paved. After the paving, Bob asked the other residents to pay their fair share of the costs for the paving, but they all refused.
- Situation 4: The President of the United States has determined that the cost associated with national defense has become too expensive. In an effort to reduce costs and balance the budget, the President has asked the public to voluntarily pay for their fair share of the costs associated with national defense. One of his advisors insists that this would not work, another advisor thinks it%u2019s good policy. Which advisor is correct?
Explanation / Answer
The above answer reported regarding the externalities is correct. The remedy that can be suggested in Situation 1 is that the cement firm should be given a limit upto which it can discharge its waste in the river. If it discharges more, then it should be taxed. The tax money should then be distributed among the residents of the village living beside the river so that they are able to clean the river using that money.
In Situation 3, Bob should have asked his fellow neighbours first before having the road paved. Since it is a public good which has been created, none of the residents will pay for it now. He should have had a voting done before making the decission and based on the voting results he should have decided upon individual contribution.