For the following situations, use the Coase theorem to explain how a socially ef
ID: 1119233 • Letter: F
Question
For the following situations, use the Coase theorem to explain how a socially efficient solution may arise.
a.
An adult bookstore, with a legal right to operate, causes psychic discomfort of $250,000 for a nearby church. The adult bookstore owner values his business at $200,000.
b.
A church has purchased a building with storefronts leased to several businesses. The church must decide whether to allow the businesses to renew their leases. One of the businesses is an adult bookstore whose owner values the location at $450,000. The continued operation of the adult bookstore would generate $250,000 of psychic discomfort to the church.
For the following situations, use the Coase theorem to explain how a socially efficient solution may arise. a. An adult bookstore, with a legal right to operate, causes psychic discomfort of $250,000 for a nearby church. The adult bookstore owner values his business at $200,000. b. A church has purchased a building with storefronts leased to several businesses. The church must decide whether to allow the businesses to renew their leases. One of the businesses is an adult bookstore whose owner values the location at $450,000. The continued operation of the adult bookstore would generate $250,000 of psychic discomfort to the church.
a.
An adult bookstore, with a legal right to operate, causes psychic discomfort of $250,000 for a nearby church. The adult bookstore owner values his business at $200,000.
b.
A church has purchased a building with storefronts leased to several businesses. The church must decide whether to allow the businesses to renew their leases. One of the businesses is an adult bookstore whose owner values the location at $450,000. The continued operation of the adult bookstore would generate $250,000 of psychic discomfort to the church.
Explanation / Answer
a. An adult bookstore, with a legal right to operate, causes psychic discomfort of $250,000 for a nearby church. The adult bookstore owner values his business at $200,000.
Answer: The efficient solution is for the adult bookstore in this scenario will be to shut down. The church could pay the adult bookstore owner the amount ranging between $200,000 and $250,000 to for the closure of the business
b. A church has purchased a building with storefronts leased to several businesses. The church must decide whether to allow the businesses to renew their leases. One of the businesses is an adult bookstore whose owner values the location at $450,000. The continued operation of the adult bookstore would generate $250,000 of psychic discomfort to the church
Answer: The efficient solution is for the adult bookstore in this scenario will be to continue operating the business at its location. The adult bookstore owner could pay the church the amount between $250,000 and $450,000 for the renewal of the lease of the store.
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