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)?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter13: Positive Externalities And Public Goods

Section: Chapter Questions

Problem 25P: Becky and Sarah are sisters 1who share a room. Their room can easily get messy, and their parents am...

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