A meditation class meets on the second floor of a building; the first floor is a dance academy. The loud music from the academy disturbs the meditation classes. The academy could be soundproofed for a cost of $6,000 or move at a cost of $9,000. The class cannot be soundproofed enough to overcome the music, but could be moved for $5,000. According to the Coase theorem, a socially optimal solution can be achieved if:
A)the government purchases the building.
B)the dance academy is relocated.
C)property rights to be noisy are granted to the nightclub.
D)property rights to a quiet environment are granted to the meditation class.
E)both the dance academy and the meditation class relocate.

Question

A meditation class meets on the second floor of a building; the first floor is a dance academy. The loud music from the academy disturbs the meditation classes. The academy could be soundproofed for a cost of $6,000 or move at a cost of $9,000. The class cannot be soundproofed enough to overcome the music, but could be moved for $5,000. According to the Coase theorem, a socially optimal solution can be achieved if:​
A)the government purchases the building.
B)the dance academy is relocated.
C)property rights to be noisy are granted to the nightclub.
D)property rights to a quiet environment are granted to the meditation class.
E)both the dance academy and the meditation class relocate.

Quizplus · Accepted Answer

According to the Coase theorem, the best solution is achieved when property rights to a quiet environment are granted to the meditation class. This would mean that the dance academy would have to either move or soundproof their space, and the socially optimal solution would depend on the bargaining power and negotiation skills of each party. However, since the question only asks for the best solution, granting property rights to a quiet environment is the correct answer.

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