Asked by Lucinda Cahill on Apr 30, 2024
Verified
Suppose your neighbor likes to repair motorcycles in his front yard during evenings and on weekends, and he earns $400 per week from this work. However, the sight of piles of greasy motorcycle parts and the additional noise and traffic caused by his customers reduces your value of living in this neighborhood by $300 per week. If you have a right to live in peace and quiet, the efficient outcome can be achieved as long as the bargaining costs:
A) are less than $100.
B) are greater than $100.
C) only include opportunity costs.
D) The Coase Theorem assumes zero transaction costs, so the bargaining costs must be zero in order to achieve the efficient outcome.
Bargaining Costs
The expenses in time, resources, or money that are incurred during the process of negotiating agreements between parties.
Coase Theorem
A principle stating that, in the presence of clear property rights and negligible transaction costs, parties can negotiate to correct externalities and allocate resources efficiently.
Efficient Outcome
A situation in which resources are allocated in the most effective manner, maximizing total benefit and minimizing waste.
- Master the basic tenets of the Coase theorem and its usage in the allocation of pollution-related costs and benefits.
Verified Answer
BF
Brigith FloresApr 30, 2024
Final Answer :
A
Explanation :
Bargaining costs must be less than the net benefit ($400 - $300 = $100) to achieve an efficient outcome, allowing for compensation and agreement between parties.
Learning Objectives
- Master the basic tenets of the Coase theorem and its usage in the allocation of pollution-related costs and benefits.