Use the following information and the graph, which illustrates the market for a pesticide with no government action, to answer the questions below.An upstream factory produces pesticide, and creates waste, which it dumps into a river on the outskirts of this town in regional Victoria. Farmers are located downstream which must filter the water before they can use it. The marginal external cost of the waste is $50 per tonne of pesticides produced
.i.What is the market price and quantity of pesticide produced? Briefly explain
ii.What is the socially optimal price and quantity of pesticide produced? Briefly explain.
iii.Discuss the market failure evident in this market. Your answer should include a discussion of the most significant economic concepts relating to this market failure. Concepts that should be included but not limited to are: allocation of resources, type of externality, how market failure arises.
iv.Re-draw the graph of the market for pesticide which demonstrates and illustrates the market failure discussed above in part (iii).
v.Briefly discuss one government option available in correcting market failure in this market.
261,329 students got unstuck by Course
Hero in the last week
Our Expert Tutors provide step by step solutions to help you excel in your courses