Mike and Bob Are Both in the Same Enclosed Hotel

question 56

Multiple Choice

Mike and Bob are both in the same enclosed hotel room.Mike assigns a $20 value to smoking his cigar.Bob values smoke-free air at $10.Which of the following scenarios is a successful example of the Coase theorem?

• A)Bob offers Mike $15 not to smoke his cigar.Mike accepts and does not smoke.
• B)Mike pays Bob $11 so that Mike can smoke his cigar.
• C)Mike pays Bob $9 so that Mike can smoke his cigar.
• D)Bob offers Mike $10 not to smoke his cigar.Mike accepts and does not smoke.

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Definitions:

Used Cars

Pre-owned vehicles that have been previously registered and are available for resale, often at lower prices compared to new cars.

Signaling

The action of sending out a signal (often indirectly through actions or attributes) to convey information or intentions in environments with information asymmetries.

Advertising

The practice of promoting products, services, or brands through various media to influence consumer behavior.

Principal

The initial sum of money loaned or invested, excluding any interest or dividends.