Suppose there are 10 people in an imaginary community. The community has a serious water pollution in the lake used for drinking water resource and recreation. Among 10 people, 6 people are willing to pay (WTP) 1,000 Korean won () each to clean up pollution. The other 4 people have a higher willingness to pay, 42,000 Korean won () to solve the pollution problem. There are three policy proposals for the water pollution.

(a) Leave it as it is (i.e. do nothing).

(b) Split 42,000 won cost evenly across people.

(c) Split 42,000 won cost evenly among the 4 people who have higher Willingness-to-Pay (WTP).

2.1. Is (b) Pareto preferred to (a)? Is (c) Pareto preferred to (a)? Explain?

2.2. Among (a), (b) and (c), which proposal is Pareto efficient? If there is no Pareto efficient proposal, suggest a Pareto efficient allocation