Question

Bryce loves baseball. During the entire baseball season (every day from mid-March until the end of October), Byrce will watch at least one game in his apartment at full volume. Candace loves basketball. During the entire basketball season (every day from mid-October until mid-June), Candace will watch at least one game in her apartment at full volume. Bryce and Candace are neighbors in the same apartment building and the walls of the building are extremely thin. In fact, when the baseball and basketball seasons overlap, neither can hear the games they are watching and each tries to play their games as loud as possible.

Part 1: (a) Describe the externalities that exist in this relationship. (b) Relying on an economic concept discussed in this unit, describe how Bryce and Candace could come to a solution (be sure to state the economic concept in your answer).

Part 2: If Bryce’s and Candace’s landlord imposed a decibel limit and required all of her tenants to cease making noise after 5pm, how would the landlord's solution be described using an economic concept discussed in this unit? Explain your answer using concepts from this unit.

Part 3: During the baseball offseason (November through mid-March), Bryce bears a $1,000 cost of hearing the loud basketball games Candace is watching. Meanwhile, Candace gets a $1,500 benefit from listening to the basketball games. Using the Coase theorem, describe a potential private outcome that could be negotiated between Bryce and Candace be beneficial to each neighbor. Explain your answer.

[Extra Credit 1 point]: Using concepts discussed in the unit, provide one reason why Bryce and Candace might not be able to negotiate a mutually beneficial outcome.

Answer 1

Answer to Part 1 :-

This is a case of Negative Consumption Externality where consuming a good causes a harmful effect on third parties .

EXPLANATION :-

In the above image refer part 1 image , both the neighbors are watching games Q at overlapping times T ( 15 days of October + 15 days of March + April + May + 15 days of June ) in which The high volumes of games are borne by neighbors and SMC that is Social Marginal Cost is Higher thus forming a shaded triangle in the form of loss suffered to the neighbors due to high volumes.

Answer to Part 2 :-

Refer Graph 2 .In the above graph the restrictions of watching games till 5 pm is quantatively increasing the price of watching the game shows thus when price increases from T1 to T2 the consumption of quantity falls from Q1 to Q2 thus increasing the PMC to the Level of SMC and forming a new equilibrium where SMC = SMB

Answer to Part 3 :-

In the above graph PMB of Candace is 1500$ , while SMC for tbrace is 1000$. Thus to form an equilibrium situation the PMB of Candace is reduced by 500$($1500-$1000) through the way of penalties. Thus Candace's PMB is shifting leftward to PMB 1, thus forming an equilibrium with Braces SMC