A group of people all get food by fishing in the same lake. The more fish are caught in a given season, the fewer fish there are to breed and so the fewer fish there will be next season. There are no fishing licenses or other regulations, each person just catches as many fish as they want. Which of the following is correct?
Question 8 Answer
a. People will catch too little fish relative to the utilitarian optimum.
b. A Pigouvian subsidy can implement the first best.
c. This is an example of positive externalities.
d. Under the socially optimal or "second best" policy, the number of fish caught would be higher than under the "first best".