Kelly and Jennifer are roommates. Kelly loves listening to rock music and uses the radio in their common area to play it. Jennifer, on the other hand, prefers the peace and quiet around the common area.
Answer the following questions given the following information:
1. Suppose the landlord tries the resolve Kelly and Jennifer's situation by giving Kelly the right to play rock music in the common area. The value of listening to rock music to Kelly is Php800 while the value of peace and quiet to Jennifer is Php900.
a What is the socially efficient outcome?
- Kelly keeps playing rock music in the common area and Jennifer tolerates it
- Kelly pays Jennifer to play rock music in the common area
- Jennifer pays Kelly to stop playing rock music in the common area and enjoys the peace and quiet
- Jennifer keeps to have the peace and quiet and Kelly does not play rock music in the common area
b Based on your answer in (1.a), what best describes the negotiation between Kelly and Jennifer?
- No money is exchanged since Kelly is able to keep playing rock music in the common area
- No money is exchanged since Jennifer is able to keep the peace and quiet in the common area
- Jennifer pays Kelly at least Php800 (but no more than Php900) to stop listening to rock music
- Kelly pays Jennifer at least Php800 (but no more than Php900) to play rock music