3043EconomicsMedium
Roberto and Thomas live in a university hall of residence. Reberto values playing loud music at a value of €100. Thomas values peace and quiet at a value of €150. Which of the following statements is true about an efficient solution to this externality problem if Roberto has the right to play loud music and if there are no transaction costs?
ARoberto will pay Thomas €150 and Roberto will continue to play loud music
BThomas will pay Roberto between €100 and €150 and Roberto will stop playing loud music
CRoberto will pay Thomas €100 and Roberto will stop playing loud music
DThomas will pay Roberto between €100 and €150 and Roberto will continue to play loud music
Correct answer
B. Thomas will pay Roberto between €100 and €150 and Roberto will stop playing loud music
Explanation
The correct answer is Thomas will pay Roberto between €100 and €150 and Roberto will stop playing loud music.