Tom carries on loud cellphone conversations in public places.He values such conversations at $1 per minute.Steve prefers piece and quiet.He would pay $2 per minute to avoid overhearing Tom's conversations.In this situation
A)Tom should quit using his cellphone because that would be a Pareto improvement
B)Tom should quit using his cellphone because that would be efficient
C)If Steve made a side payment of $3 to Tom,that would be a Pareto improvement
D)If Steve paid Tom 50 cents per minute to quit talking,that would be a Pareto improvement
E)If Steve paid Tom $1.50 per minute to quit talking,that would be a Pareto improvement

Question

Quizplus · Accepted Answer

Since Tom values his loud cellphone conversations at $1 per minute and Steve values avoiding them at $2 per minute, it is possible to make a Pareto improvement by having Steve pay Tom $1.50 per minute to quit talking. Tom would receive more than his value of the conversation, while Steve would pay less than his value of avoiding the conversation, resulting in a net gain for both parties. Thus, choice E is the best choice.

Tom Carries on Loud Cellphone Conversations in Public Places