Suppose that you rent a house next to a factory. The factory legally emits a chemical into the air that smells like feet. You now have to spend $300 more per month on air fresheners because the firm pollutes the air. You could move to another house far enough away from the factory, but the rent for that house is $200 more than you now pay. The efficient solution to this problem is that
A) the factory owner should compensate you $300 so that you can pay for the additional expenses you incur.
B) you should move to the new house because the additional rent on that new house is less than the additional expenses you incur from living next to the factory.
C) the factory owner should reimburse you $100, the difference between your expenses and the higher rent on the new house.
D) the firm should be able to continue to pollute because only one person is being harmed by the factory's pollution.

Question

Quizplus · Accepted Answer

Moving to the new house is the efficient solution because it minimizes the additional expenses incurred from the pollution, costing only $200 more in rent compared to the $300 for air fresheners.

Suppose That You Rent a House Next to a Factory