Problem
A natural spring runs under land owned by ten people. Each person has the right to sink a well and can take water from the spring at a constant marginal cost of $5 a gallon. Table 2 sets out the marginal external cost and the marginal social benefit from the water.
1. Draw a graph to illustrate the market equilibrium. On your graph, show the efficient quantity of water taken.
2. If the government sets a production quota on the total amount of water such that the spring is used efficiently, what would that quota be?
3. If the government issues ITQs to land owners that limit the total amount of water taken to the efficient quantity, what is the market price of an ITQ?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.