1. If Farmer Ben produces apple cider and dumps his apple waste into the creek behind his barn, what negative externality might that create? Make up a particular individual who could be affected by the apple waste in the creek and tell me about the negative spillover.

2. Think again about Farmer Ben, and imagine his abatement cost curve and the damage function for his apple waste leads to the optimal release of e*. Now imagine his neighbor, a pig farmer, offers to pick up Ben’s apple waste because it can be used as pig slop. So now Ben has a free way to dispose of his apple waste as an alternative to dumping it in the creek. Which of the curves—cost abatement or damages—does that shift and in what direction? With the shift in that curve, is the new e* lower or higher than the old one?

3. benefit-cost analysis (BCA). Why might the choice of discount rate tend to matter more for the benefit side of a BCA than the cost side?

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1 Negative externality of dumping apple waste into the creek By dumping his apple waste into the cre... View the full answer