Suppose There Are Ten People Playing Cards in a Room

question 23

Multiple Choice

Suppose there are ten people playing cards in a room. One of them wants to smoke a cigar, nine of them dislike the smell of cigar smoke. The smoker values the privilege of smoking at $5, and each of the other nine people of the room would be willing to pay fifty cents for clean air in the room. The rules governing use of the room state that smoking is not allowed unless everyone agrees to allow smoking. If all ten people can negotiate with each other at no cost, then which of the following outcomes is consistent with the Coase theorem?

• A)The cigar smoker will not be able to smoke because the majority of people in the room dislike the smell of cigar smoke.
• B)The cigar smoker will pay each of the other nine people fifty-five cents, and they will agree to allow smoking.
• C)The cigar smoker will smoke because the external cost of smoking does not need to be taken into consideration.
• D)The nine non-smokers will each pay the cigar smoker fifty cents and the cigar smoker will not smoke.

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Definitions:

Great Britain

The island comprising England, Scotland, and Wales, often used to refer to the United Kingdom which includes Northern Ireland.

Mental Illness

A broad range of medical conditions that affect a person's thinking, feeling, mood, and behavior.

Legal Capacity

This term refers to a person's ability to enter into binding contracts and have them enforced by law, typically governed by factors such as age and mental state.

Binding Contract

refers to an agreement between parties that is legally enforceable and includes obligations that each party must fulfill.