A familiar example of a negative externality is loud music on a university campus.In principle,it should be possible to internalize this externality by permitting students to negotiate rights to play music during particular times.The most likely reason that these negotiations do NOT happen is that:
A) most students are unfamiliar with the Coase theorem.
B) the transaction costs associated with identifying and establishing communication with students would be high.
C) music is an experience,not a good.
D) some students don't view loud music as a negative externality.

Question

Quizplus · Accepted Answer

The transaction costs associated with identifying and establishing communication with students to negotiate rights to play loud music would be high. This would likely be a time-consuming and resource-intensive process, which makes it less likely that negotiations would occur. It is important to note that the Coase theorem assumes negligible transaction costs, which is not the case in this scenario.

A Familiar Example of a Negative Externality Is Loud Music