Watch this video:
In it, you’ll see that one way to correct the externality is by Betty giving Carl some chips.
The video suggests that Carl is harmed by Betty’s crunching; were we to stop Betty’s crunching completely, that would help Carl. Would it impose any harm on Betty? If so, what solutions could we devise to compensate Betty?
It seems as if there is only one solution: impose a tax on Betty to compensate Carl. We might, though, consider alternative arrangements that result in Betty and Carl feeling satisfied besides taxing Betty (in fact, one possibility is to tax Carl). Can you think of some alternative solutions?
