1.Consider two people called Young and Old. Young and Old live together. Young can choose to party or not to party. Young values going to party at $10. The cost of the risk of getting Corona from going to the party is $1 for Young. However, the cost to Old of getting Corona from Young if he goes to the party is $20.

a.State Coase's theorem

b.Suppose there is no bargaining and that Young doesn't care about Old. What is Young's privately optimal action, Party or No Party?

c.Given the answer to (a), does this maximize social surplus (Net Payoff of Young + Net Payoff of Old)?

d.Suppose Young has a right to party (Old cannot forcibly prevent Young). Old and Young bargain over Young going to party. How much will Old have to offer Young to make him willing to not party?

e.Still supposing Young has a right to party, if they bargain will Young party or not? Will the outcome maximize social surplus?

f.Now suppose Young has no right to party. Old and Young bargain over Young going to party. How much will Young have to offer Old to be allowed to party?

g.Still supposing Young has no right to party, if they bargain will Young party or not? Will the outcome maximize social surplus?

h.Compare your answers to e and g. What is unchanged by whether Young has a right to party or no right to party? What is changed?