To cut an acre of trees in a small logging area in coastal Oregon, assume it cos

Question

To cut an acre of trees in a small logging area in coastal Oregon, assume it costs lumber companies $4,000 and they receive $9,000 in benefits (revenue) from the sale of the logs. Each acre of trees cut also destroys spotted owl habitat, an endangered species. Economists studying the issue quantify this external cost of owl habitat destruction (the only externality of logging in this case) at $3,000 per acre. True/False: Lumber sales from this region create DWL. True/False: Logging this region is efficient True/False: The market outcome is efficient True/False: Taxing logging companies $3,000 per harvested acre would lead to an efficient quantity of harvested acres.

Explanation / Answer

1. True as Lumber sales of log/tress create DWL -deadweight loss as its destroying OWL habitat which cost excess $3000 per acre.

2. True : Logging is efficient in terms of revenue generated except DWL.

3. True : Market Outcome is also effcient as revenue is $9000 while costing is $4000 except DWL.

4. False : Taxing the logging companies can;t give the original outcome as OWL are endagred species.

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