Question

Suppose that Charles wants to dine at a fancy restaurant, but the only available table is in the smoking section. Charles dislikes the smell of cigarette smoke. He notices that only one person, Sam, is smoking in the smoking section. Charles values the absence of smoke at exist40. Sam values the ability to smoke in the restaurant at exist15. Which of the following represents an efficient solution in the absence of transaction costs?
a. Charles offers Sam between exist15 and exist 40 not to smoke. Sam declines because he has a right to smoke in the smoking section.
b. Sam continues to smoke because he has a right to smoke in the smoking section.
c. Charles offers Sam between exist15 and exist40 not to smoke. Sam accepts, and both parties are better off.
d. Only a government policy banning smoking in restaurants will solve this problem.

Answer 1

Answer:

c. Charles offers Sam between exist15 and exist40 not to smoke. Sam accepts, and both parties are better off.

Explanation:

Since in the question it is mentioned that Charles wants to dine in a restaurant i.e. fancy but the table that only available in the smoking section and he not like the smell of cigarette also he notice that one person that named Sam smoking there so based on the given situation the option c would be chosen as Sam received the gain of $15 by smoking but also he received more than $15 in cash when he accept and stop smoking

Therefore the option c is correct