Microeconomics Chapter 16, Externality, Property Rights, and the Coase Theorem

2. Smith can produce with or without a filter on his smokestack. Production without a filter results in greater smoke damage to Jones. The relevant gains and losses for the two individuals are listed in the table below: (LO3) With filter Without filter Gains to Smith $200/wk $245/wk J Damage to Jones $35/wk $85/wk a. If Smith is not liable for smoke damage and there are no negotiation costs, will he install a filter? Explain carefully. b. How, if at all, would the outcome be different if Smith were liable for all smoke damage and the cost of the filter were $10/wk higher than indicated in the table? Explain carefully.2. Smith can produce with or without a filter on his smokestack. Production without a filter results in greater smoke damage to Jones. The relevant gains and losses for the two individuals are listed in the table below: (LO3) With filter Without filter Gains to Smith $200/wk $245/wk J Damage to Jones $35/wk $85/wk a. If Smith is not liable for smoke damage and there are no negotiation costs, will he install a filter? Explain carefully. b. How, if at all, would the outcome be different if Smith were liable for all smoke damage and the cost of the filter were $10/wk higher than indicated in the table? Explain carefully