Suppose There Are Ten People Playing Cards in a Room

question 62

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. Declaring the card room a non-smoking area with no opportunity to negotiate would:

• A)decrease total economic surplus.
• B)increase total economic surplus.
• C)leave total economic surplus unchanged, but redistribute benefits.
• D)efficiently solve the externality problem.

---

Definitions:

Investing Activities

One of the components of cash flow statements that shows the cash spent on and generated from various investment-related activities in a specific period.

Financing Cash Flows

Cash flows related to obtaining or repaying capital, such as issuing or buying back shares and borrowing or repaying loans.

Paying Cash Dividends

Paying Cash Dividends involves distributing a portion of a company's earnings to shareholders in cash, reflecting a return on investment.

GAAP

A group of standard accounting practices and principles broadly used for reporting financial information.