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Question

Question 1) Suppose that the conditions for the Caose Theoremhold;that is, property rights for a resource are clearlyestabilished and bargaining costs are low. If so, what are theefficiency consequences if the government imposes a pigouvian taxequal to the marginal external damage of production?

Solution

xx the xxxxxxxxxx imposes x xxxxxxxxx xxx equal xx the xxxxxxxxxxxxxxxx xxxxxx xx production, xxxx there xxxx xx xxxxxxxxxy in xxxxxxxxxy, as xxx xxxxy xx going xx loss xxx xxxxx xxxxxx whichhe/she xxxxx have xxx xxxx xxx bargaining . Instead xxx xxx xxxyxxxx go xx the xxxxxxxxx xx xxx form xx taxes xxx xxx xxxxxxxxxxxxxx'x give xxxx money xx xxxxxx xx compensation xx the xxx xxxxyxxx xxx been xxxxxxxxx by xxx xxxxxxxxxxxy.xx yxx don't xxxxxxxxxx anything, xxxx xxxxxxx, x will xxxxxxxxxx on xxx xxxx.xxx xx you xxxxx the xxxxxx xxxx xxxxxx do xxxxxx the xxxx.xxxxxx :)

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