A Meditation Class Meets on the Second Floor of a Building;

question 114

Multiple Choice

A meditation class meets on the second floor of a building; the first floor is a nightclub.The loud music from the club disturbs the classes.The club could be soundproofed for a cost of $5, 000 or move at a cost of $8, 000.The class can't soundproof enough to overcome the music, but could be moved for $4, 000.According to Coase,

• A)the club should be soundproofed so both businesses can stay open
• B)the club should be soundproofed because it is the one generating the externality
• C)the club should move rather than be soundproofed because eliminating an externality is better than compensating for it
• D)the class should move because it can eliminate the externality at a lower cost than can the nightclub
• E)whichever business has been there longer has the overriding property right; the other should adjust

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Definitions:

Consumption

The act of using up goods and services by households or individuals, leading to a decrease in their quantity.

Marginal Propensity

The ratio of a change in consumption (or saving) to a change in income, indicating how much of an income change individuals will spend or save.

Disposable Income

The amount of money available for savings or expenditure after all taxes and social security fees have been deducted.

Induced Consumption

Consumption that changes in response to changes in income or wealth, as opposed to autonomous consumption, which does not change when income changes.