Suppose there are two people who live next door to each other. One of them (pers
ID: 1094201 • Letter: S
Question
Suppose there are two people who live next door to each other. One of them (person A) has loud parties. Person B dislikes the noise from parties. Person A claims that he has the right to have parties on his property. Person B claims that he has the right to live noise free. They ask the court to clarify the allocation of their property rights. The monthly marginal bene fit of an additional party for person A (MBA) and the monthly marginal cost of an additional party for person B (MCB) are summarized in the figure below. Suppose that no other neighbors are a ffected by the partying.
1. The socially optimal number of parties is?
2. Suppose that high transaction costs preclude A and B from reaching an agreement. Then, if the court allocates the property rights to person A, he will end up having how many parties? Resulting in a total surplus of?
3. If the court allocates the property rights to person B instead, A would end up having how many parties? Resulting in a total surplus of?
Suppose there are two people who live next door to each other. One of them (person A) has loud parties. Person B dislikes the noise from parties. Person A claims that he has the right to have parties on his property. Person B claims that he has the right to live noise free. They ask the court to clarify the allocation of their property rights. The monthly marginal bene fit of an additional party for person A (MBA) and the monthly marginal cost of an additional party for person B (MCB) are summarized in the figure below. Suppose that no other neighbors are a ffected by the partying. 1. The socially optimal number of parties is? 2. Suppose that high transaction costs preclude A and B from reaching an agreement. Then, if the court allocates the property rights to person A, he will end up having how many parties? Resulting in a total surplus of? 3. If the court allocates the property rights to person B instead, A would end up having how many parties? Resulting in a total surplus of?Explanation / Answer
Suppose there are two people who live next door to each other. One of them (pers
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