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Large industrial almond farms use toxic pesticides on their almond trees to prevent pests from destroying the trees. The toxic pesticides from the large industrial farms located near rivers run off the farmland and into waterways. As a result, fishing towns located downstream from the industrial almond farms have suffered a significant reduction in the amount of fish caught.

Part 1 (4 points): (a) Draw the supply-demand model for the almond market. Identify the equilibrium price (P1) and quantity (Q1) in the market. (b) Is the quantity you identified the socially optimal quantity? Explain your answer.

Part 2 (6 points): Assume the social costs of pesticides are not included in the almond farms' costs. (a) Draw a social cost curve that includes the social costs in the almond market. Identify the new equilibrium price (P2) and quantity (Q2) in the market. (b) What does the new quantity represent? Explain your answer.

Part 3 (4 points): Assume the social cost of almonds are $0.00001 per almond. (a) How could the government force the almond market to internalize the social cost of almonds? Explain your answer and be specific.

Part 4 (6 points): Assume that the fishing towns have the right to unpolluted waters. The almond farms could use a non-toxic pesticide to protect their trees for $200,000. This non-toxic pesticide would not pollute the downstream water. The downstream fishing towns receive a benefit of $250,000 from fishing in unpolluted waters. (a) Using the Coase Theorem, describe an efficient outcome between the fishing town and the almond farmers. Explain your answer and be specific.