Refer to the information provided in Figure 16.4 below to answer the question(s) that follow.
Los Angeles International Airport (LAX) is located next to Playa Del Rey. The noise from air traffic negatively affects individuals living in Playa Del Rey, however, this cost is not considered by airlines or air travelers. The airlines feel they have a right to use the airspace while the individuals living in Playa Del Rey feel they have the right to quiet. The following diagram depicts the marginal costs and marginal benefits associated with air travel. Figure 16.4
-Refer to Figure 16.4. Suppose the government assigns property rights to the residents of Playa Del Rey, then the airlines and the residents engage in negotiations. The resulting efficient level of air travel is
A) 0 units.
B) 100 units.
C) 120 units.
D) indeterminate from the given information.

Question

Refer to the information provided in Figure 16.4 below to answer the question(s) that follow.
Los Angeles International Airport (LAX) is located next to Playa Del Rey. The noise from air traffic negatively affects individuals living in Playa Del Rey, however, this cost is not considered by airlines or air travelers. The airlines feel they have a right to use the airspace while the individuals living in Playa Del Rey feel they have the right to quiet. The following diagram depicts the marginal costs and marginal benefits associated with air travel.  Figure 16.4
-Refer to Figure 16.4. Suppose the government assigns property rights to the residents of Playa Del Rey, then the airlines and the residents engage in negotiations. The resulting efficient level of air travel is
A) 0 units. 
B) 100 units. 
C) 120 units. 
D) indeterminate from the given information.

Quizplus · Accepted Answer

According to the Coase Theorem, when property rights are clearly defined and transaction costs are low, parties will negotiate to reach an efficient outcome regardless of the initial allocation of rights. In this scenario, assigning property rights to the residents allows them to negotiate with the airlines. The efficient level of air travel would be the one that maximizes the net benefit to both parties, which, based on the information provided, is 100 units.

Refer to the Information Provided in Figure 16