TABLE OF CONTENTS

Question 1 of 3

Work It Out
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You must read each slide, and complete any questions on the slide, in sequence.

The loud music coming from the sorority next to your dorm is a negative externality that can be directly quantified. The accompanying table shows the marginal social benefit and the marginal social cost per decibel (dB, a measure of volume) of music.

The table provides the volume of music in decibels in the first column. The values start from 90 to 97 in single increments. The second column provides the marginal social benefit of increasing the music volume. The values start from 36 and decreases to 0 in multiples of 6. The third column provides the marginal social cost of increasing the music volume. The values start from 0 up to 12 in increments of 2.

What is the socially optimal volume of music? (Hint: It may help to draw a graph.)
1:50

Only the members of the sorority benefit from the music, and they bear none of the cost. Which volume of music will they choose?
0:36

The college imposes a Pigouvian tax of $3 per decibel of music played. Determine the volume of music the sorority will now choose.
0:41