Due Today at 1 LPM EST 6. Problems and Applications Q6 Carlos loves opera and ha

Question

Due Today at 1 LPM EST 6. Problems and Applications Q6 Carlos loves opera and hates rock 'n' roll. Van loves playing rock 'n' roll music at high volume. Unfortunately, they are next-door neighbors in an apartment building with paper-thin walls. In this case, imposes a externality on his neighbor in the form of noise pollution. Why might a command-and-control policy that forbids music to be played above a certain decibel level lead to an inefficient outcome? O It is unfair because such policy would restrict Van's activity but not Carlos's. O Van playing his music loudly does not do any harm if Carlos is not home. An efficient outcome can only be achieved if everyone can do what they love. Suppose the landlord lets the tenants do whatever they want. True or False: According to the Coase theorem, Van and Carlos can never reach an agreement without a third party assisting in the negotiations. True False

Explanation / Answer

Externalities are the consequences that can be positive or negative and it affect the unrelated third parties.In the above case Van imposes a negative externality on his neighbor in the form of noise pollution.

Command and control policy deals in regulation of illegal activities and the activities which are permitted.So the option b will lead to an inefficient outcome as per the policy that forbids music to be played above the certain decibel level.

Coase theorem deals in economic efficiency in the in the presence of externalities. So the above statement is false as both van and carlos can reach an agreement without the third party assisting in the negotiation as it evaluate the relative power of the parties entering in an agreement rather than of third party.

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