Question

Suppose a chemical plant regularly dumps chemicals into a river that must be cleaned up before farmers located downstream can use the water on their crops. Dumping the chemicals into the river saves the chemical plant $750,000 in yearly disposal costs and cleaning the water costs farmers $825,000 each year. Explain what the benevolent social planner would like to see happen in this case.

Answer 1

Ans.

The chemical plant is causing water pollution by dumping chemical into river which saves $750,000 for them .Whereas for the farmers located downstream use the water for their crops and to clean this water it costs $ 825,000 each year.

Since 825,000 > 750,000 that is cost of cleaning water is more than cost of chemical disposal . A benevolent social planner who cares about welfare of the consumer would not allow dumping of chemical into river as they can be done by some other ways also which will be more efficient. This way river will also not be polluted and for farmers the cost of cleaning water will decrease.