1. Tetracycline is an antibiotic that has quite a few different uses. It can relieve the symptoms of some comparatively minor ailments (acne and conjunctivitis, for instance), as well as cure some serious diseases (typhus and pneumonia, for example).

The bacteria that tetracycline acts against live short lives and multiply rapidly. Occasionally a mutant that is resistant to tetracycline pops up. The more often tetracycline is used in the world, the higher the proportion of resistant bacteria becomes, and so the less effective tetracycline is. Eventually tetracycline will lose enough effectiveness that people will have to turn to other antibiotics, which will be more expensive and less effective.

a. Explain the externality involved in tetracycline use. Outline a potential Pareto improvement.

b. Describe a Pigouvian policy for realizing this potential Pareto improvement.

c. Describe a Coasian policy for realizing this potential Pareto improvement.