John Lives in an Apartment Building and Gets a Benefit

John lives in an apartment building and gets a benefit from playing his stereo.Mary,who lives next door to John and often loses sleep due to the loud music coming from John's stereo,bears a cost from the noise.Mary is threatening to call the police to force John to turn down his stereo.Under which of the following conditions would John be able to offer Mary some amount of money to keep her from calling the police and to allow him to continue to play his stereo loudly?

A) The cost of the noise to Mary must exceed the benefit of the music to John.
B) The benefit of the music to John must exceed the cost of the noise to Mary.
C) The Coase Theorem guarantees that Mary and John will always be able to come to an agreement that keeps Mary from calling the police regardless of the individual benefits and costs.
D) The cost of the noise to Mary must exceed the benefit of the music to John by an amount greater than the transaction costs associated with the agreement.

Correct Answer:

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