Vincent owns a farmhouse in Provence that is in dire need of repainting. He hires a local house-painter, Pablo, to paint it next month for $2,000, subject to Vincent’s satisfaction with the final product. Unfortunately, Pablo owes his friend Jackson $1,500, and despite his previous promises to pay Jackson from his work proceeds, Pablo always spends his earnings immediately after he is paid. Frustrated with this pattern, Jackson threatens to sue Pablo for the outstanding balance if he does not pay within 24 hours. If Jackson pursues litigation, Pablo’s time and resources will be fully consumed and he will not be able to paint Vincent’s house. Pablo does not have $1,500 on hand, but he will have the $2,000 payment from Vincent next month. Jackson agrees to extend the deadline a month if Pablo pays $2,000 instead of $1,500, so Pablo tells Vincent to pay the $2,000 directly to Jackson.

What deadweight losses are avoided by this arrangement?

Select all answers that apply.

Vincent’s farmhouse does not get painted

Non-payment of the debt owed to Jackson

Pablo’s payment of $500 more than his outstanding debt

Pablo is unable to accept and complete the job

Answer rating: 100% (QA)

ANSWERS C Nonpayment of the debt owed to Jackson No one can be imprisoned for nonpayment of debt tru... View the full answer