Dropbox 5.4 - DROPBOX 5.4 CHAPTERS 10 and 11 Dropbox 5.4...

DROPBOX 5.4 – CHAPTERS 10 and 11
Dropbox 5.4 – Exercises for Chapters 10 and 11
ECO-330
Indiana Wesleyan University

Corrective Tax
Supply of Pollutant Permits
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DROPBOX 5.4 – CHAPTERS 10 and 11
Chapter 10
8a. It’s a negative externality in the form of noise pollution.
8b. The landlord could put command-and control policies into effect, such as a rental subsidy for those
tenants who don’t own instruments, or perhaps a add an additional fee to tenants who do have
instruments (similar to extra rent tenants pay to have pets). This might be inefficient because if they still
live next door to each other, they would still have the issue of the noise problem regardless of whether
Luciano was paying less rent or Ring was paying more rent. Perhaps the landlord could place create a
command-and control policy that restrict the hours music is played or the volume that it is played.
8c. The Coase theorem states if private parties can bargain over the allocation of resources at no cost,
then the private market will always solve the problem of externalities and allocate resources efficiently.