Scenario 1 Acid Whey: The Less Delicious By product of The Greek Yogurt Boom Gre
ID: 1102871 • Letter: S
Question
Scenario 1
Acid Whey: The Less Delicious By product of The Greek Yogurt Boom
Greek yogurt is a delicious dairy product that’s produced by taking regular yogurt and straining it to a delicious, protein-rich thickness. The thing is, though, all of that straining means that you’re straining something out of the yogurt. That something is more than water: it’s post-fermentation liquid called acid whey. For every three or four ounces of milk that enter a yogurt plant, one ounce of acid whey leaves. They can’t dump it in sewage systems or waterways, and at least one manufacturer actually pays local farmers to take the liquid whey away and do something with it.
Some creative uses for it: one local dairy farmer takes the whey, which is mostly water with some lactose (milk sugars), protein, and yogurt cultures, and mixes it up with his cows’ feed. It’s sort of full circle.
An even more exciting use for the farm requires a huge investment up front that most farmers don’t have the resources for. Anaerobic digesters are a sort of septic tank for cow poo. They take in a slurry of animal manure and acid whey and let it brew, releasing stinky gases that the digester converts into electricity. One upstate New York farmer’s digester produces enough electricity to run the farm and sell some back to the grid.
Based on the scenario, determine the type of market failure that arises (if any). Also provide a justification for your choice.
Scenario 2: City Sues Sriracha Hot Sauce Factory Over Eye-Burning Chili Stench
The city of Irwindale, California is home to a Sriracha factory which process all of the chilis that the facility will need for the coming year during the last few months of the year, from early September to the beginning of December at the latest. That’s the time of year when the scent of chili is so thick that citizens’ who live near the hot sauce factory eyes and noses burn from the chili sauce in the air.
The company at first cooperated with city officials when asked to find ways to cut back on the smell. Then it denied that there’s a problem. The city filed a suit in county superior court asking that a judge shut down the plant until the company can find a way to cut back on the odor output.
(b) Based on scenario 2, determine the market failure that arises (if any). Also provide a justification for your choice.
Scenario 3: Judge Orders California Sriracha Factory to Halt Operations
A judge in California has ordered the Huy Fong Foods Sriracha hot sauce plant in Irwindale, CA to cease any operations that cause irritation. The LA Times reports that the judge ruled in favor of the city, writing that the odor appears to be "extremely annoying, irritating and offensive to the senses warranting consideration as a public nuisance." While he did write that the smells tormenting the citizens of Irwindale could be "reasonably inferred" to coming from the factory, the judge also added that there is a "lack of credible evidence" linking the various cited ailments like burning eyes and headaches to the odors.
The injunction orders the factory to "cease any kind of operations that could be causing the odors" and that it "make immediate changes that would help mitigate them," it does not force a complete closure of the factory, nor does it specify what exact changes need to be made.
(c) Do you agree with the corrective remedy imposed in scenario 3? Provide a justification for your response.
Scenario 4: Bay of Bengal: depleted fish stocks
The Bay of Bengal’s basin contains some of the most populous regions of the earth. No less than a quarter of the world’s population is concentrated in the eight countries that border the bay. Approximately 200 million people live along the Bay of Bengal’s coasts and of these a major proportion are partially or wholly dependent on its fisheries.
The fisheries of the Bay of Bengal have been under pressure for decades and are now severely depleted. Many once-abundant species have all but disappeared. Catches now consist mainly of species like sardines, which are at the bottom of the marine food web. Attempts have been made to regulate fishing in the bay but they have been largely ineffective. In 2015 Sri Lankan authorities claimed to have spotted 40,544 Indian trawlers in Sri Lanka’s territorial waters. Conversely, many Sri Lankan tuna fishermen have also been arrested in India. In Myanmar, until a ban was enacted in 2014, the catch collected by foreign fishing boats was 100 times greater than that of local fishermen.
At night specially equipped, long-armed boats materialize around the islands and shine high-powered green lights into the water to attract plankton and the squid that follow in their wake
(d) Based on scenario 4, determine the market failure that arises (if any). Use the scenario to provide a justification for your choice.
Explanation / Answer
Scenario 1 refers to the case of positive externality. Positive externality occurs when the economic decision of an economic agent increases the welfare of another agent. Moreover, the effect of such a decision does not enter the calculation of market price.
In this case the acid whey is the un-planned effect of the production of yogurt that is helping farmers in getting cows’ feed and electricity.
Scenario 2 refers to the case of negative externality. Negative externality occurs when the economic decision of an economic agent decreases the welfare of another agent. Moreover, the effect of such a decision does not enter the calculation of market price.
In this case the scent of chili is the negative externality that is adversely affecting the welfare of the citizens of Irwindale, California.
Scenario 3: The corrective remedy imposed by the judge is not sufficient. The reason being that without specifying the exact measures that the factory needs to take the judge has left the corrective measures at the discretion of the factory. Unless and until specific measures with specific targets are outlined such a judgment is of no use.
Scenario 4 refers to the case of market failure that arises due to the lack of proper assigning of property rights. The reason being the Bay of Bengal basin is being used as a common where people are fishing without any restrictions.
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