Suppose that a popular sandwich shop regularly attracts so many customers that the noise and crowd outside the shop disturb the local residents. The neighborhood association has threatened to shut down the shop for violating the local noise ordinance.Now, suppose that the benefit the shop owner gets from running his business is greater than the cost the noise imposes on the neighborhood. The parties may be able to reach an agreement without the shop shutting down, according to an economic proposition known as Economies of scale/ the Coase theoram/ the hinvisible hand . This economic proposition depends on the parties' ability to bargain at a low cost/ act charitably / agree on an equitable initial distribution of rights .

6. Private solutions to correct for externalities Suppose that a popular sandwich shop regularly attracts so many customers that the noise and crowd outside the shop disturb the local residents. The neighborhood association has threatened to shut down the shop for violating the local noise ordinance. Now, suppose that the benefit the shop owner gets from running his business is greater than the cost the noise imposes on the neighborhood. The parties may be able to reach an agreement without the shop shutting down, according to an economic proposition known as . This economic proposition depends on the parties' ability to