A familiar example of a negative externality is loud music on a college campus.In principle,it should be possible to internalize this externality by permitting students to negotiate rights to play music during particular times.The most likely reason that these negotiations do NOT happen is that:
A)most students are unfamiliar with the Coase theorem.
B)the transaction costs associated with identifying and establishing communication with students would be high.
C)music is an experience,not a good.
D)some students don't view loud music as a negative externality.

Question

Quizplus · Accepted Answer

The transaction costs associated with identifying and establishing communication with students would be high. This means that the costs of negotiating and enforcing such agreements would be too high for the benefit gained, making it unlikely that students would engage in such negotiations, even if they were aware of the concept of externalities and the Coase theorem.

A Familiar Example of a Negative Externality Is Loud Music