Question

Jones and Smith share the same cubical in the office. Jones loves to listen to music on his speakers while working. Smith is not able to concentrate on his work in the presence of music.

Jones receives benefits worth​ $200 regardless of whether he listens to music on his speakers or headphones. The cost of headphones is​ $50. Smith is not able to concentrate on his work and suffers damages worth​ $350 when Jones listens to music without his headphones. Smith does not suffer any damages when Jones listens to music on his headphones.

Suppose the office does not have any rules against listening to music on speakers while working.

In this​ case, if Jones and Smith do not​ communicate, the market outcome is that

▼

Jones continues to listen to music on his speakers; therefore, Smith is not able to concentrate on his work

Jones continues to listen to music on his speakers; however, Smith is able to concentrate on his work

Jones starts listening to music on headphones; therefore, Smith is able to concentrate on his work

Jones stops listening to music on his speakers; therefore, Smith is able to concentrate on his work

.

This market outcome is

▼

socially efficient

socially inefficient

.

Which of the following is the outcome of bargaining when Jones and Smith can bargain at zero​ cost?

A.

A private deal between Jones and Smith cannot be struck as headphones are not free.

B.

Jones gives​ $350 to Smith and continues to listen to music on speakers.

C.

Smith starts listening to music on his speakers at a higher volume so as to cause disturbance to Jones. As a​ result, both of them suffer the damages worth more than​ $350.

D.

Smith gives​ $50 to​ Jones, and Jones agrees to listen to music using his headphones.

Now suppose their office passes a rule that says employees are not allowed to listen to music on their speakers while working. As​ before, Jones and Smith can bargain at a zero cost.

What will be the final outcome in this​ case?

A.

Smith stops listening to music and both of them receive net benefits worth more than​ $350.

B.

Jones buys headphones to listen to​ music, and both of them suffer damages worth more than​ $200.

C.

Jones buys headphones to listen to​ music, giving him net benefits worth​ $150. Smith does not suffer any damages.

D.

Smith gives Jones headphones as a​ gift, giving Jones net benefits worth​ $150 and Smith suffers damages worth​ $300.

When Jones and Smith can bargain at zero​ cost, the new rule of the office has

▼

no

little

remarkable

impact on achieving the economically efficient outcome.

Answer 1