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.