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Market price per ream of paper

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Consider the production of paper in Strelsau. Suppose that the supply of paper is upward-sloping and the demand for paper is downward-sloping. The smell of the paper-production process in this town is both strong and horrific. Suppose that the production of paper causes a negative externality of $1.50 per ream, and the conditions outlined by the Coase theorem do not hold.

By how much does the optimal price per ream of paper differ from the market price per ream of paper?

The optimal price is

  1. is lower than the market price but by less than $1.50.
  2. is exactly $1.50 higher than the market price.
  3. cannot be determined with the information provided.
  4. is exactly $1.50 lower than the market price.
  5. is more than $1.50 higher than the market price.
  6. equals the market price
  7. is more than $1.50 lower than the market price.
  8. is higher than the market price but by less than $1.50.

Reference no: EM132478889

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