1. In which of the following situations is the Coase theorem likely to apply? Ex
ID: 1167890 • Letter: 1
Question
1. In which of the following situations is the Coase theorem likely to apply? Explain.
a. The neighbor who lives below you in the apartment building loves to play old John Denver records at loud volume early in the morning. In fact, his favorite song seems to be “Thank God I’m a Country Boy.” You hate old John Denver songs and this one in particular.
b. You have just moved to Beijing and quickly discover that you are allergic to smog. It causes you great pain in breathing and limits your ability to work. Furthermore, you have medical expenses related to treatment for its health effects on you.
c. Medical research in the 1990s has revealed a specific cause of birth defects related to a certain drug prescribed for pregnant women in the 1960s (thalidomide).
d. The water in the huge underground Ogalalla aquifer in the Great Plains region of the United States is being nitrate contaminated due to agricultural fertilizer use throughout the region. As a homeowner in this region, you find that your water must be treated in order to be safe for drinking.
Explanation / Answer
Coase theorem: It indicates to stay in the business or leave the business based on the operational cost and damage cost.
Coase theorem should apply for option d.
Explanation: As long as the agriculture operational cost is higher than the cost of treating safe drinking water, better known as damage cost, the agriculture operation would be entertained. Otherwise, in case of visa verse the agriculture operating should be stopped.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.