Kevin and Randall are two brothers who share a room. In this clip, Randall is trying to finish his homework by his bedside underneath a desk lamp. Being it is 2:00AM, Kevin is trying to sleep and is annoyed by the added light in the room. An altercation ensues, prompting Rebecca to intervene. After an offer from Randall to move to a different room, Kevin barges out, retreating to the basement.
The cause of the initial problem is Randall’s desk light, which acts as the negative externality in the situation. Randall is the producer of the externality, because the opportunity cost of shutting off the light and going to bed is too high in the face of his other responsibilities, such as football and homework. Kevin’s opportunity cost, however, conflicts with Randall’s preferences, because the opportunity cost of losing sleep is too high in light of his commitment to football. In searching for a solution, Randall makes a transaction cost by offering to move into the kitchen, since this offer acts as a form of negotiation. The problem is eventually ended through Kevin’s internalization of the externality: moving to the basement. It is through this action that Kevin utilizes the Coase Theorem to eliminate any more transaction costs and to end the problem efficiently.
Thanks to Megan Vareha for the clip and the summary!