10. Jones and Smith are neighbors. Jones runs a marijuana shop out of his home. Smith, a doctor, sees patients at his home. Jones makes an annual profit of $1 million from operating his marijuana business. Smith earns $750,000 annually from his medical practice, but he would earn $2 million without the disruption caused by Jones' marijuana selling activities. (a) Suppose the law imposes no restriction on what a homeowner may do in his home. What would the outcome be, as predicted by Coase? (b) Suppose the law requires that one's neighbors consent to what a homeowner does in his home. What would the outcome be, as predicted by Coase? (c) How optimal would the outcome be in (a) and (b)?
10. Jones and Smith are neighbors. Jones runs a marijuana shop out of his home. Smith, a doctor, sees patients at his home. Jones makes an annual profit of $1 million from operating his marijuana business. Smith earns $750,000 annually from his medical practice, but he would earn $2 million without the disruption caused by Jones' marijuana selling activities. (a) Suppose the law imposes no restriction on what a homeowner may do in his home. What would the outcome be, as predicted by Coase? (b) Suppose the law requires that one's neighbors consent to what a homeowner does in his home. What would the outcome be, as predicted by Coase? (c) How optimal would the outcome be in (a) and (b)?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:10. Jones and Smith are neighbors. Jones runs a marijuana shop out of his home. Smith, a
doctor, sees patients at his home. Jones makes an annual profit of $1 million from operating his
marijuana business. Smith earns $750,000 annually from his medical practice, but he would
earn $2 million without the disruption caused by Jones' marijuana selling activities.
(a) Suppose the law imposes no restriction on what a homeowner may do in his home. What
would the outcome be, as predicted by Coase?
(b) Suppose the law requires that one's neighbors consent to what a homeowner does in his
home. What would the outcome be, as predicted by Coase?
(c) How optimal would the outcome be in
(a) and
(b)?
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