2 The table at the top of the next column provides information about the costs and benefits of steel smelting that pollutes the air of a city. a With no property rights in the city’s air and no regulation of pollution, what is the quantity of steel produced per week and what is the marginal cost of pollution borne by the citizens? b If the city owns the steel plant, how much steel is produced per week and what does the city charge the steel producer per tonne?

c If the steel firm owns the city, and if the residents of a pollution-free city are willing to pay a15,000 a week in property taxes, how much steel is produced per week and how much are the citizens willing to pay in property taxes to live in the polluted city? d Compare the quantities of steel produced in parts

(b) and

(c) and explain the relationship between them.

Total Steel Marginal Marginal product producer’s external benefit of of steel MC cost steel (tonnes per week) (euros per tonne) 0 0 0 1,200 10 100 15 1,100 20 200 25 1,000 30 300 50 900 40 400 100 800 50 500 200 700 60 600 300 600 70 700 400 500 80 800 500 400