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1. Consider a policy-maker who is interested in achieving the first best outcome for society. The policy-maker is faced with a monopoly which produces good

1. Consider a policy-maker who is interested in achieving the first best outcome for society. The policy-maker is faced with a monopoly which produces good x. The production of good x leads to pollution in a nearby river. With reference to the Theory of the Second Best, explain what actions the policy-maker could take, and the possible consequences of those actions, in this situation. Make sure to include an explanation of the Theory of the Second Best in your answer. [6 marks] 2. Using the idea of polluting monopoly, graphically illustrate the Theory of the Second Best

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