Ty Lives in an Apartment Building and Gets a Benefit

question 316

Multiple Choice

Ty lives in an apartment building and gets a benefit from playing his stereo. Olivia, who lives next door to Ty and often loses sleep due to the loud music coming from Ty's stereo, bears a cost from the noise. Olivia is threatening to call the police to force Ty to turn down his stereo. Under which of the following conditions would Ty be able to offer Olivia some amount of money to keep her from calling the police and to allow him to continue to play his stereo loudly?

• A)The cost of the noise to Olivia must exceed the benefit of the music to Ty.
• B)The benefit of the music to Ty must exceed the cost of the noise to Olivia.
• C)The Coase Theorem guarantees that Olivia and Ty will always be able to come to an agreement that keeps Olivia from calling the police regardless of the individual benefits and costs.
• D)The cost of the noise to Olivia must exceed the benefit of the music to Ty by an amount greater than the transaction costs associated with the agreement.

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Definitions:

Baby Formula

A manufactured food designed and marketed for feeding to babies and infants, usually prepared for bottle-feeding or cup-feeding from powder or liquid.

Price Decrease

a reduction in the cost of goods or services, often triggered by factors such as increased supply, reduced demand, or competitive pricing strategies.

Income Effect

The change in an individual's or economy's income and how that change will impact the quantity demanded of a good or service.

Inferior Good

A good, such as used clothes, for which demand decreases, or shifts leftward, as consumer income rises.