Answer to Question 1
The Arctic Sea minerals might be privately owned or government owned. Regardless of who owns them, mining minerals creates pollution and disturbs marine life habitat, which have external costs.
If the minerals are privately owned, then the quantity mined will be the amount that sets the marginal private cost equal to the marginal private benefit. This quantity will have a deadweight loss because the marginal social cost exceeds the marginal private cost.
If the minerals are government owned, then their allocation will be by majority vote. Lobbyists will pressure elected officials to adopt their posi-tion in return for help with reelection. In this case, green lobbyists and business lobbyists likely will square off. If the greens prevail, there is a possibility that no minerals will be mined. This situation has a deadweight loss because less than the efficient quantity is mined. If the business groups prevail, then there might be significant amounts mined. This situation, similar, to the case of private ownership, has a deadweight loss because of overuse of the minerals. The outcome is either efficient or inefficient depending on the strength of the opposing lobby groups.
Answer to Question 2
C
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