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Tim and James are neighbours in a flat. Tim is a musician who likes to compose...

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Economics

Tim and James are neighbours in a flat. Tim is a musician wholikes to compose loud music at home while James is a full timestudent who needs a quiet environment to stay at home. Jamesconsider the loud music from Tim as noise and disturb him in hisstudy. Assume that the music provides a benefit of $60 to Tim butcost James $90.

(a) If Tim is not liable for the noise and both parties cannegotiate at no cost, what will be an efficient outcome?

(b) If the law requires Tim to observe silence and can only makenoise with James approval and both parties can negotiate with nocost, what will be an efficient outcome?

(c) If the negotiation cost is $50, under what situation willthe efficient outcome occur?

Answer & Explanation Solved by verified expert
4.4 Ratings (866 Votes)
a If Tim is not liable for loud music and both parties can negotiate at no cost then the efficient outcome would be that James can give 60 to Tim and ask him not to play loud music By doing this Tim would get the same benefit that he would have got by playing loud music and James can now study in    See Answer
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