How much compensation would be required
Course:- Econometrics
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Options for Abating Noise Pollution. Janis enjoys loud music and is willing to pay $9 for the first song and $1 less for each succeeding song ($8 for the second, $7 for the third, and so on). For her dormmates, the external cost from the noise pollution is $4 per song. (Related to Application 3 on page 670.

a. Suppose initially the price of songs is $0. How many songs will Janis play? Illustrate with a graph.

b. Suppose the government imposes a pollution tax of $4 per song. How many songs will Janis play? Compute the loss in consumer surplus from the tax, which increases the price of songs from $0 to $4Janis could soundproof her room, eliminating the noise pollution and her responsibility to pay the pollution tax. If the soundproofing costs $30, is it worthwhile?

c. Janis could compensate her dormmates for each unit of noise pollution each song played. How much compensation would be required? From her perspective, is paying compensation better than paying the tax, worse, or the same?

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