A Familiar Example of a Negative Externality Is Loud Music

question 31

Multiple Choice

A familiar example of a negative externality is loud music on a college campus.In principle,it should be possible to internalize this externality by permitting students to negotiate rights to play music during particular times.The most likely reason that these negotiations do NOT happen is that:

• A)most students are unfamiliar with the Coase theorem.
• B)the transaction costs associated with identifying and establishing communication with students would be high.
• C)music is an experience,not a good.
• D)some students don't view loud music as a negative externality.

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Definitions:

Fixed Costs

Costs that do not vary with the level of production or sales, such as rent, salaries, and insurance, making them consistent regardless of business activity levels.

Short Run

A period of time in which at least one input, such as plant size, is fixed and cannot be changed by the firm, limiting its capacity to adjust output levels.

MC = P

A condition in economic theory where Marginal Cost (MC) equals Price (P), indicating optimal production levels where no additional units should be produced.

Profit

The financial gain obtained when the total revenues generated exceed the total costs incurred by a business.