Ricky, a retired railroad conductor and Lucy, a full time lab technician are next door neighbors in an apartment building. Ricky loves to play loud heavy metal music, which can be heard for hours during the evening. Lucy can't stand heavy metal, which often rattles the wall of her small apartment from the large speakers next door. A. What is the externality in the example above? B.  What command-and-control policies might the landlord impose? Could such policies lead to an inefficient outcome? C. If the landlord refuses to get involved in the despute. Based on the ideas associated with the Coase theorem, how might Ricky and Lucy reach an efficient outcome on their own? What might prevent them from reaching an efficient outcome?

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