Assume That Your Roommate Is Very Messy

question 110

Multiple Choice

Assume that your roommate is very messy.According to campus policy,you have a right to live in an uncluttered apartment.Suppose she gets a $200 benefit from being messy but imposes a $100 cost on you.The Coase theorem would suggest that an efficient solution would be for your roommate to

• A) stop her messy habits or else move out.
• B) pay you at least $100 but less than $200 to live with the clutter.
• C) continue to be messy and force you to move out.
• D) demand payment of at least $100 but no more than $200 to clean up after herself.

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Definitions:

Effective Annual Rate

The interest rate on a loan or financial product restated on an annual basis, accounting for compounding over the term.

Compounded Continuously

The process of calculating interest on an investment or loan where the interest is reinvested and earns additional interest constantly over time.

Interest Rate

The fee a lender imposes on a borrower for utilizing assets, represented as a proportion of the principal sum.

Present Value

Today's monetary equivalent of a future amount of money or cash flow sequences, using a specified rate of return.