19. In which of the following cases is the Coase theorem most likely to solve th

Question

19. In which of the following cases is the Coase theorem most likely to solve the externality? a. Ed is allergic to his roommate's cat. b. Chemicals from manufacturing plants in the Midwest are causing acid rain in Canada. c. Polluted water runoff from farms is making residents of a nearby town sick. d. Industrialization around the world is causing global warming. 20. Mary and Cathy are roommates. Mary assigns a $30 value to smoking cigarettes.Cathy values smoke-free air at $15. Which of the following scenarios is a successful example of the Coase theorem? a. Cathy offers Mary $20 not to smoke. Mary accepts and does not smoke b. Mary pays Cathy $16 so that Mary can smoke. c. Mary pays Cathy $14 so that Mary can smoke. d. Cathy offers Mary $15 not to smoke. Mary accepts and does not smoke.

Explanation / Answer

19. Correct option: (c)

Reason: In this situation, both the parties can come and meet each other and discuss out a negotiation plan effectively. This makes application of Coase theorem fake, which is not correct.

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