A meditation class meets on the second floor of a building.The first floor is a dance academy.The loud music from the academy disturbs the meditation classes.The academy could be soundproofed for a cost of $6,000 or moved at a cost of $9,000.The classroom cannot be soundproofed enough to overcome the music,but the class can be moved at a cost $5,000.According to the Coase theorem,the socially optimal solution can be achieved if _____
A)the government purchases the building.
B)the dance academy is relocated.
C)property rights to be noisy are granted to the nightclub.
D)property rights to a quiet environment at another location are granted to the meditation class.
E)both the dance academy and the meditation class relocate.

Question

Quizplus · Accepted Answer

According to the Coase theorem, the socially optimal solution can be achieved through negotiation if property rights are clearly defined. Granting property rights to a quiet environment to the meditation class allows them to negotiate with the dance academy to either soundproof or relocate, minimizing costs.

A Meditation Class Meets on the Second Floor of a Building.The