1. Consider a plant that pollutes lead into the drinking water of a small town. The town is con- sidering a couple of interventions (i.e. taxation versus regulation) to address this problem. However, they are uncertain about the firms cost of reduction. Provide a solution to this problem. How does the policy instrument affect efficiency when cost are unknown.

2. If Eliza is currently willing to trade 4 loaves of bread for 1 gallon of milk, then she must like loaves of bread better than gallons of milk? Why or why not?