| In a dormitory two students are are sharing one room. Student A likes to read French lyric. Student E loves the Rolling Stones. The students have the following utility functions: mA = (xA )1/2+ (M - m )1/2 UE = (xE)1/2 + (m)1/2 with: xi -- consumer spending of the person (A,E) i? m -- volume of the music (Rolling Stones) M -- greatest possible volume Each person has an income of It = 2 1. Why is a prohibition of stereos not efficient? 2. What is a Pareto efficient volume? 3. If student E owns a tradable permit for playing music, what would the according market equilibrium look like? | 
