Max Lives in an Apartment Building and Gets a Benefit

question 263

Multiple Choice

Max lives in an apartment building and gets a benefit from playing his stereo.Lily,who lives next door to Max and often loses sleep due to the loud music coming from Max's stereo,bears a cost from the noise.Lily is threatening to call the police to force Max to turn down his stereo.Under which of the following conditions would Max be able to offer Lily some amount of money to keep her from calling the police and to allow him to continue to play his stereo loudly?

• A) The cost of the noise to Lily must exceed the benefit of the music to Max.
• B) The benefit of the music to Max must exceed the cost of the noise to Lily.
• C) The Coase Theorem guarantees that Lily and Max will always be able to come to an agreement that keeps Lily from calling the police regardless of the individual benefits and costs.
• D) The cost of the noise to Lily must exceed the benefit of the music to Max by an amount greater than the transaction costs associated with the agreement.

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Definitions:

Actor

A person who performs in theatrical productions, movies, or television shows.

Deterrence Hypothesis

The view that the arrest and punishment of some individuals for violation of laws deters other persons from committing the same violations.

Research

The systematic investigation into and study of materials and sources to establish facts and reach new conclusions.

Formal Labeling

The process of assigning official or structured tags or names to individuals or phenomena, often based on certain behaviors or characteristics.