Consider the perfectly competitive market for greenhouse vegetables. The supply and demand equations are given as follows: QS $=2$P QD $=2002$P$.$

Suppose that the production of greenhouse vegetables causes the greenhouse gases to be released which increases the temperature of a nearby mountainous area where there is a ski resort. Due to the increased temperature the ski resort does not have enough snow and has to use fake snow which costs the resort $$20$ per one unit of vegetable produced by the greenhouse.

$($a$)$ Draw the supply and demand curves and find the market quantity and price

$($$\mathrm{b)}$ What type of externality does this market exhibit? Why?

$($$\mathrm{c)}$ Suppose all the assumptions of the Coase Theorem holds, and the property rights of the area belongs to the ski resort.

 Propose a compensation scheme that will correct the externality.

$($$\mathrm{d)}$ Suppose the assumptions of the Coase Theorem doesn"t hold. 

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Answer rating: 100% (QA)

a To find the market quantity and price we need to set the quantity supplied equal to the quantity d... View the full answer