How does the government determine the quota amount that will produce an efficient use of a common resource?
What will be an ideal response?
The government must determine the marginal social benefit and the marginal social cost of the common resource. By equating marginal social benefit to marginal social cost, the efficient use of a common resource is determined. A quota is set to this level of production. Producers are assigned a portion of this quota. As long as no one cheats on his or her quota, the efficient outcome occurs.
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