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What would be the most efficient tax to levy on Dean's playing?

What would be the most efficient tax to levy on Dean's playing?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question 29 Dean likes to practice guitar in his apartment, working primarily on mastering old Velvet Underground songs. Because he's sure that developing guitar prowess will lead to riches - or at least critical acclaim in indie circles - he derives $500 in surplus from being able to practice. Dean's practicing, however, is quite loud and can be heard clearly through paper-thin walls in his hip Brooklyn apartment. Britta lives next door and likes to read, but she is unable to do so when Dean plays guitar. She gets $350 in surplus from the satisfaction of reading. Suppose that when Dean and Britta bargain, they always split any surplus to be divided evenly. Assume that it's common knowledge that courts always overestimate damages by $200, and transaction costs are $50. What would be the most efficient tax to levy on Dean's playing? a) $200 O b) $500 O c) $350 d) $0
Transcribed Image Text:Question 29 Dean likes to practice guitar in his apartment, working primarily on mastering old Velvet Underground songs. Because he's sure that developing guitar prowess will lead to riches - or at least critical acclaim in indie circles - he derives $500 in surplus from being able to practice. Dean's practicing, however, is quite loud and can be heard clearly through paper-thin walls in his hip Brooklyn apartment. Britta lives next door and likes to read, but she is unable to do so when Dean plays guitar. She gets $350 in surplus from the satisfaction of reading. Suppose that when Dean and Britta bargain, they always split any surplus to be divided evenly. Assume that it's common knowledge that courts always overestimate damages by $200, and transaction costs are $50. What would be the most efficient tax to levy on Dean's playing? a) $200 O b) $500 O c) $350 d) $0
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