Coase Theorem

Being a nonsmoker and sharing a room with a smoker i will bargain over whether my roommate can
continue to smoke in the room or not.

i prefer clean air more than my roommate preferring smoking will create bargaining steps which will
lead to my roommate not smoking. If my roommate wants to smoke more than i prefer clean air, the
next bargaining step will lead to my roommate smoking. The outcome may be efficient as long as
transaction cost do not stop an mutual agreement from taking place. The solution may be reached
by one of us paying off the other either not to smoke or for the right to smoke in the form of paying
something in return.

Price Flooring

When the price of a good is not allowed to bring supply and demand into equilibrium some
alternative mechanism must allocate resources as following:

If quantity supplied exceeds quantity demanded, so then it causes surplus of goods which refers as
binding price floor, sellers may adopt personal biases of the buyers to make it attractive.

If quantity demanded exceeds quantity supplied then there could be shortage of goods, and sellers
can cater the goods according to their personal biases to make buyers wait in line.

There are many examples of price ceilings such as property owners control rent price, price controls
on petrol/oil by the government In other words, a price floor is a legal minimum on the price set at
which a good can be sold. Examples of price floors include the minimum wage and farm support
prices. A price floor leads to a surplus, if the floor is ceiled, because suppliers produce more goods
than are demanded unless the price is allowed to fall below the floor