Economic Analysis of Social Issues 1st Edition by Alan Grant

Exercise 22

In problem, every time beer is brewed, pollution is created. Government can reduce this pollution to the ideal amount by taxing beer producers for each bottle they produce. The ideal tax to accomplish this is
A) $1.75
B)$2.50
C) $3.00
D) $5
Problem:
Suppose that John and Jacob both brew beer.
• John can brew beer at a cost of materials and labor of $2.50 per bottle; Jacob can brew beer at a cost of $1.7 5 per bottle.
• People who drink their beers get $5 of value from each beer.
• Brewing beer is a messy and smelly process. Every bottle that is brewed causes $3 of damage to the people who live near the brewery.
The benevolent social planner would like to see
A) Both John and Jacob brew beer
B) Only John brew beer
C) Only Jacob brew beer
D) Neither John nor Jacob brew beer