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1. Imagine you own an apartment in Gaza next to another apartment owner with a baby who cries every two hours at night. The value you place on good night’s sleep is $200. The cost of installing a sound-proof wall is $1500. The cost of good earplugs is $50. The value your neighbor places on letting the baby cry to get the baby used to falling asleep by himself is $500. (6) a. If your neighbor has the right to make noise, explain the range of possible amounts of money that would be exchanged between the two parties or costs incurred AND the socially efficient outcome. Option 1: Put up with the noise: Cost = $200 Option 2: Install wall: Cost = $1500 Option 3: Pay neighbor to console baby when he cries: Cost = >$500 Option 4: Buy earplugs: Cost = $50 The socially optimal solution in the absence of government intervention such as noise regulations (which is unnecessary in this situation given the small number of parties involved and low cost of bargaining) is to buy the earplugs. b. Does the fact that your neighbor has the property right effect what the socially efficient outcome is? PROVE YOUR ANSWER. If I owned the right to peace and quiet, buying earplugs is still the efficient option: Option 1: Neighbor pays me to put up with noise: Cost = >$200 Option 2: Neighbor installs wall: Cost = $1500 Option 3: Neighbor gets up at night to console baby: Cost = $500 Option 4: Neighbor buys you earplugs: Cost = $50