J
Jessica
Guest
Suppose that an open-air amphitheater is built several miles from a small town. After the construction is completed it is discovered that the heavy bass from rock concerts regularly disturbs the 2,500 local residents between the hours of 10:00 PM and 1:00 AM on summer nights. Each local resident places a value of $150 on having quiet evenings at home during the summer concert season. The amphitheater owners could install a retractable roof over the amphitheater that would eliminate the noise at a cost of $350,000. Local residents could install extra insulation in their homes to soundproof them at a cost of $125 per resident.
8.1. Suppose transactions costs are zero so that it is easy for the theater owner and the town residents to reach an agreement that makes them all better off. If the amphitheater must provide full monetary compensation for any noise damage imposed on the community, which of the following outcomes is most likely to happen?
A. The amphitheater owners will pay $350,000 to install the retractable roof.
B. The amphitheater owners will pay $312,500 (= 2,500 x $125) to install extra insulation in the homes of local residents.
C. The local residents will pay $312,500 (= 2,500 x $125) to install extra insulation in their own homes.
D. The local residents will pay $350,000 to have the amphitheater install the retractable roof.
8.2 Suppose transactions costs are zero. If the amphitheater is NOT required to pay any compensation for any noise damage done to the community, which of the following outcomes is most likely to happen?
A. The local residents will pay $350,000 to have the amphitheater install the retractable roof.
B. The amphitheater owners will pay $312,500 (= 2,500 x $125) to install extra insulation in the homes of local residents.
C. The amphitheater owners will pay $350,000 to install the retractable roof.
D. The local residents will pay $312,500 (= 2,500 x $125) to install extra insulation in their own homes.
8.3. Suppose that transactions costs are so high as to make it impossible for the amphitheater owners and the community to bargain with each other. If a noise pollution tax of $375,000 is imposed on the amphitheater with the proceeds given to the community to compensate them for any damage, which of the following outcomes is most likely to happen?
A. The amphitheater will pay a noise tax of $375,000 with the proceeds going to the local residents.
B. The amphitheater owners will pay $312,500 (= 2,500 x $125) to install extra insulation in the homes of local residents.
C. The amphitheater owners will pay $350,000 to install the retractable roof because the alternative is to pay damages of $375,000 to the local residents.
D. The local residents will pay $312,500 (= 2,500 x $125) to install extra insulation in their own homes.
8.1. Suppose transactions costs are zero so that it is easy for the theater owner and the town residents to reach an agreement that makes them all better off. If the amphitheater must provide full monetary compensation for any noise damage imposed on the community, which of the following outcomes is most likely to happen?
A. The amphitheater owners will pay $350,000 to install the retractable roof.
B. The amphitheater owners will pay $312,500 (= 2,500 x $125) to install extra insulation in the homes of local residents.
C. The local residents will pay $312,500 (= 2,500 x $125) to install extra insulation in their own homes.
D. The local residents will pay $350,000 to have the amphitheater install the retractable roof.
8.2 Suppose transactions costs are zero. If the amphitheater is NOT required to pay any compensation for any noise damage done to the community, which of the following outcomes is most likely to happen?
A. The local residents will pay $350,000 to have the amphitheater install the retractable roof.
B. The amphitheater owners will pay $312,500 (= 2,500 x $125) to install extra insulation in the homes of local residents.
C. The amphitheater owners will pay $350,000 to install the retractable roof.
D. The local residents will pay $312,500 (= 2,500 x $125) to install extra insulation in their own homes.
8.3. Suppose that transactions costs are so high as to make it impossible for the amphitheater owners and the community to bargain with each other. If a noise pollution tax of $375,000 is imposed on the amphitheater with the proceeds given to the community to compensate them for any damage, which of the following outcomes is most likely to happen?
A. The amphitheater will pay a noise tax of $375,000 with the proceeds going to the local residents.
B. The amphitheater owners will pay $312,500 (= 2,500 x $125) to install extra insulation in the homes of local residents.
C. The amphitheater owners will pay $350,000 to install the retractable roof because the alternative is to pay damages of $375,000 to the local residents.
D. The local residents will pay $312,500 (= 2,500 x $125) to install extra insulation in their own homes.