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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

Imagine that you are a nonsmoker sharing a room with a smoker. According to the Coase theorem, what determines whether your roommate smokes in the room? Is this outcome efficient? How do you and your roommate reach this solution?

To determine
Application of coase theorem.

Explanation

According to the Coase theorem, you and your roommate can bargain over whether your roommate will smoke in the room. The solution depends on how you value the externality. If your value for clean air is more than your roommate’s value for smoking, the bargaining process will lead to your roommate not to smoke...

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