Final answer:
The Coase Theorem is the solution used in the scenario where Yvette chooses not to litter to avoid negative social perception, reflecting her self-regulation due to community pressure. This aligns with private solutions to externalities, where market forces and defined property rights guide individuals without government intervention.
Step-by-step explanation:
The scenario with Yvette deciding not to litter cigarette butts on her neighbor's lawn is an example of a private solution to an externality; specifically, it aligns with the Coase Theorem. The Coase Theorem states that if there are no costs to transactions and property rights are well-defined, parties can negotiate to correct externalities on their own without government intervention. Yvette, concerned about how her actions are perceived by the community, self-regulates her behavior to avoid the negative externality of littering, showing social pressure and community standards playing a role akin to defined property rights.
In the context of the provided information on market equilibrium and negative externalities, such as second-hand smoke from cigarettes, it's understood that individuals' actions can have unwanted effects on others, which might not be factored into the market price (Pm) and quantity (Qm). The optimal social output (Pe) and price (Qe) would account for the externalities, resulting in a different market equilibrium where the true social costs are considered. The difference between this socially optimal point and the market output is known as the deadweight loss, which represents the loss of economic efficiency when the equilibrium outcome is not socially optimal.