Suppose That Maria Wants to Dine at a Fancy Restaurant,but

question 102

Multiple Choice

Suppose that Maria wants to dine at a fancy restaurant,but the only available table is in the smoking section.Maria dislikes the smell of cigarette smoke.She notices that only one person,John,is smoking in the smoking section.Maria values the absence of smoke at $25.John values the ability to smoke in the restaurant at $15.Which of the following represents an efficient solution in the absence of transaction costs?

• A)John continues to smoke because he has a right to smoke in the smoking section.
• B)Maria offers John between $15 and $25 not to smoke.John accepts, and both parties are better off.
• C)Maria offers John between $15 and $25 not to smoke.John declines because he has a right to smoke in the smoking section.
• D)Only a government policy banning smoking in restaurants will solve this problem.

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Definitions:

Advertising Elasticity of Demand

The responsiveness of the quantity demanded of a good to a change in the amount of advertising for that good.

Marginal Cost of Production

The change in total production costs that comes from making or producing one additional item.

Advertising Elasticity of Demand

Measures the responsiveness of the quantity demanded of a good or service to a change in the level of advertising for that good or service.

Rule of Thumb

A general principle that provides practical instructions for accomplishing or approaching a certain task.