Peter Studies at the Coffee Shop Around the Corner, at the Same

Multiple Choice

Peter studies at the coffee shop around the corner, at the same time that John talks loudly on his cell phone. The costs and benefits of each cell phone call made by John are given by the following table:

$\begin{array}{|l|r|r|}\text { \# of cell phone calls}&\text { MarginalCosts to Peter} &\text { MarginalBenefits toJohn}\\\hline 0 & \$ 0 & \$ 0 \\\hline 1 & \$ 2 & \$ 10 \\\hline 2 & \$ 6 & \$ 8 \\\hline 3 & \$ 10 & \$ 6 \\\hline\end{array}$ According to the Coase theorem, when the parties affected by externalities can negotiate costlessly with one another

A) an efficient outcome results if the liability is placed on the party with the lowest cost of prevention.
B) an efficient outcome results no matter how the law assigns responsibility.
C) efficiency cannot be reached without government intervention.
D) the correct way to deal with an externality is to tax it.