Principles of Economics, 7th Edition

Published by South-Western College
ISBN 10: 128516587X
ISBN 13: 978-1-28516-587-5

Chapter 10 - Part IV - Externalities - Problems and Applications - Page 214: 7

Answer

a) The externality is the loud music. b) The landlord could impose noise limits. c) Ringo and Luciano can bargain over how much they value their own music and how much they would pay to not listen to the other person's music.

Work Step by Step

b) The noise limitations could lead to an inefficient outcome since Ringo couldn't listen to his loud music while he is in his apartment. c) The Coase theorem states that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own. Another option is for Ringo and Luciano to determine during what hours they would prefer to listen to their own music.
Update this answer!

You can help us out by revising, improving and updating this answer.

Update this answer

After you claim an answer you’ll have 24 hours to send in a draft. An editor will review the submission and either publish your submission or provide feedback.