A meditation class meets on the second floor of a building; the first floor is a nightclub.The loud music from the club disturbs the classes.The club could be soundproofed for a cost of $5, 000 or move at a cost of $8, 000.The class can't soundproof enough to overcome the music, but could be moved for $4, 000.According to Coase,
A)the club should be soundproofed so both businesses can stay open
B)the club should be soundproofed because it is the one generating the externality
C)the club should move rather than be soundproofed because eliminating an externality is better than compensating for it
D)the class should move because it can eliminate the externality at a lower cost than can the nightclub
E)whichever business has been there longer has the overriding property right; the other should adjust

Question

Quizplus · Accepted Answer

According to Coase, the most efficient solution is the one that minimizes the total cost of resolving the externality. In this case, moving the class costs $4,000, which is less than the $5,000 cost of soundproofing the club.

A Meditation Class Meets on the Second Floor of a Building;