1. The production of sriracha hot sauce has been alleged to cause considerable harm to people who live near the factory, who suffer breathing problems and eye pains from spices released into the air.

Demand for bottles of sriracha is P = 45 - Q

Supply for bottles of sriracha is P = 15 + 2Q

Each bottle of sriracha produced causes 3 harm to people who live around the factory.

What is the differencebetween the number of bottles that the market will produce and the efficient number of bottles?

Your answer should be positive if the market produces too many, negative if the market produces too few, and zero if it's just right.

2. Would a tax on sriracha hot sauce improve efficiency in this case (assuming it was the right size)? Why or why not?

Group of answer choices

No, because while the tax could reduce output, it wouldn't be able to reduce it to the efficient level

Yes, because this would force the factory to limit output

No, because there's no requirement that the tax money goes to the people affected

Yes, because the factory would have the same marginal cost as society.

3. After the tax is put in place, the people living near the factory sue the factory. They win the lawsuit and demand the factory be shut down, which removes all of the harm caused by the factory.

Does the lawsuit increaseeconomic efficiency? Why or why not?

Group of answer choices

Yes, because efficiency doesn't care about the equality of distribution

Yes, because it removes the harm that the hot sauce was doing

No, because this makes the hot sauce into an artificially scarce good

No, because the hot sauce was producing more surplus for producers and consumer than it was causing harm to others