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T OR F Consider the situation where banana producers use a pesticide that runs...

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T OR F

Consider the situation where banana producers use a pesticide that runs off into waterways and affects the nearby fishermen. The market for bananas is competitive and the market price is 400 per tonne and the initial output is 80,000. The fishermen have the right to clean water. The government uses Pigouvian tax to reduce the output to the efficient level of 38,000. Suppose the marginal social cost curve shifts downwards but remains above the marginal private cost curve. Which of the following statements is/are true? 900 Marenaam 800 700 600 500 Marnot pv Costs 400 A Price 300 200 100 0 10,000 20,000 30000 40000 50,000 60,000 70.000 80.000 90.000 100.000 Quantity of bananas Q (tonnes per year) a) The net social gain from reducing the output to the efficient level would be higher. A b) Under a Pigouvian tax, the tax revenue received by the government would be higher. c) The socially optimal quantity would be higher and the privately optimal quantity remains the same

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