Jack and Jill are walking up the hill, discussing how much they like apples. Jack would be willing to pay $4.00 for one apple. If he had one apple, he would be willing to pay $1.00 for a second. If he had two apples, he would be willing to pay only $.25 for the third. Jill would be willing to pay $2.00 for the first apple. If she had one, she would be willing to pay $.50 to get the second. If she had two, she would be willing to pay only $.25 to get the third.

On the way up the hill, Jill finds three apples. What is the economically efficient distribution of these three apples?

Jill keeps all three apples.
Jack gets one apple and Jill keeps two.
Jack gets two apples and Jill keeps one.
Jack gets all three apples.


An aquifer in Snake Valley has a billion gallons of water. Baker can use this water for agriculture and it will be worth half a million dollars. The city of Meadows can use this water for its citizens and it will be worth one million dollars. According to the Coase Theorem,

the water must belong to the city of Meadows for it to be used in its most valued use.
if there are no transactions costs, the water will be used efficiently even if Baker owns it.
the water will be used efficiently only if no one owns it.
the water will be used efficiently even if no one owns it.


Back to Reading Overview Next Page