Refer to the information provided in Figure 16.4 below to answer the question(s) that follow.
Los Angeles International Airport (LAX) is located next to Playa Del Rey. The noise from air traffic negatively affects individuals living in Playa Del Rey, however, this cost is not considered by airlines or air travelers. The airlines feel they have a right to use the airspace while the individuals living in Playa Del Rey feel they have the right to quiet. The following diagram depicts the marginal costs and marginal benefits associated with air travel. Figure 16.4
-Refer to Figure 16.4. Suppose the government assigns property rights to the airlines, then the airlines and the residents engage in negotiations. The ________ of air travel is 100 units.
A) minimum allowable level
B) resulting efficient level
C) government-regulated level
D) maximum allowable level

Question

Refer to the information provided in Figure 16.4 below to answer the question(s) that follow.
Los Angeles International Airport (LAX) is located next to Playa Del Rey. The noise from air traffic negatively affects individuals living in Playa Del Rey, however, this cost is not considered by airlines or air travelers. The airlines feel they have a right to use the airspace while the individuals living in Playa Del Rey feel they have the right to quiet. The following diagram depicts the marginal costs and marginal benefits associated with air travel.  Figure 16.4
-Refer to Figure 16.4. Suppose the government assigns property rights to the airlines, then the airlines and the residents engage in negotiations. The ________ of air travel is 100 units.
A) minimum allowable level 
B) resulting efficient level 
C) government-regulated level 
D) maximum allowable level

Quizplus · Accepted Answer

The resulting efficient level of air travel, after negotiations between airlines and residents with assigned property rights to the airlines, would be 100 units. This outcome is based on the Coase theorem, which suggests that if property rights are clearly defined and transaction costs are low, parties will negotiate to an efficient outcome regardless of the initial allocation of rights.

Refer to the Information Provided in Figure 16