AEC 251 problem set 3_fall 2018

# Price of tree which is its marginal benefit quantity

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Price of Tree (which is it’s marginal benefit) Quantity of Trees Demanded \$30 0 \$25 8000 \$20 14000 \$15 20000 \$10 26000 \$5 32000 \$0 38000 3) Ronald owns a corn farm at the source of a long river. Fertilizer run-off from his corn fields flows into the river and down many miles to where Carla lives. Carla gets her drinking water from the river. By allowing the fertilizer run-off to seep into the river, Ronald imposes a negative externality on Carla. In each of the two following cases, do you think, that through

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negotiation, Ronald and Carla can find an efficient solution? What might this solution look like? a. There are no telephones, and for Carla to talk to Ronald, she has to travel for two days on a rocky road. b. Carla and Ronald both have e-mail access, making it costless for them to communicate. 4) Explain how each of these market outcomes help reduce “transaction costs.” a. An Oregon apple grower hires a farm labor contractor who provides harvest work crews for the farm when needed. b. An Oregon winery uses a Salmon-safe label to signal their use of sustainable viticulture practices c. A restaurant asks its customers to rate their eating experiences on Yelp. Exclusion Costs and Rivalry in Use 5) List the levels of exclusion costs (are they high or low), and levels of rivalry in use (high or low) for each of the following goods and services: (i) genetic material in wheat varietals (ii) a public safety 911 rural call system (iii) a steak dinner. 6) Why are voluntary contributions to pay for national advertising campaigns promoting the consumption of agricultural products like “beef”, “cheese”, “milk”, etc. unlikely to lead to an efficient quantity of these advertising campaigns, even though numerous studies by agricultural economists have found that these campaigns create greater consumer demand for these food categories (i.e., the benefits of these campaigns exceed their costs)?
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