A meditation class meets on the second floor of a building; the first floor is a nightclub. The loud music from the club disturbs the classes. The club could be soundproofed for a cost of $5,000 or move at a cost of $8,000 . The class can't soundproof enough to overcome the music, but could be moved for $4,000 . According to Coase,
a. the club should be soundproofed so both businesses can stay open
b. the club should be soundproofed because it is the one generating the externality
c. the club should move rather than be soundproofed because eliminating an externality is better than compensating for it
d. the class should move because it can eliminate the externality at a lower cost than can the nightclub
e. whichever business has been there longer has the overriding property right; the other should adjust
D
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Price discrimination strategies that cause considerable consumer resentment or a negative reaction from competitors can reduce or eliminate the effectiveness of such strategies
Indicate whether the statement is true or false
Answer the following statement true (T) or false (F)
1) Extensive network effects may drive a market toward natural monopoly because consumers tend to choose a common, standard product that everyone else is using. 2) Price discrimination occurs whenever a firm sells a good for two different prices. 3) Price discrimination will result in consumers with more elastic demand purchasing more of the good than when a single price is charged to all consumers in the market. 4) Successful price discrimination requires that buyers charged the different prices be physically separated. 5) Price discrimination is illegal in the United States under antitrust regulations.