While Jerry and Elaine are at a restaurant, a valet parking attendant with body odor leaves Jerry's car with a lingering smell. The external costs are large: the smell attaches itself to Jerry and Elaine, who have to resort to costly measures to cleanse themselves. Jerry attempts to recoup some of the damage by cleverly bargaining with the restaurant owner to cover the cost of cleaning the car. In the end, the cleaning is not enough, and Jerry leaves the car and keys in plain sight hoping it will be stolen, in which case the insurance company will bear the loss.
Jerry accompanies Elaine to a piano bar. He meets a girl he likes at the dinnertable, as a piano plays in the background. She asks, "How much do you suppose it'd take to get him to stop?" Jerry says, "I'm in for $5." She replies, "I'll supply the hat." This is a private solution to the externality.
Jerry's car is stolen, so he rents a car. The rental company doesn't give him the car he reserved; he gets a small economy car. They ask if he wants insurance, and he replies, "Yes, because I'm going to beat the hell out of this car."
Kramer & Jerry go to visit Elaine's ex-boyfriend, who is in hospital undergoing surgery. While at the hospital, Kramer persuades Jerry to watch the operation with him in a gallery above the operating theatre. When Kramer sneaks in candy and forces it on Jerry, Jerry knocks his hand and a Junior Mint falls from the gallery and lands inside the patient! Jerry thinks he may have killed the guy but he makes a miraculous recovery!
A Kenny Rogers Roaster restaurant opens across the street from Kramer. He can't stand the red glare from Kenny's neon sign, and moves into Jerry's apartment. But he becomes hooked on Kenny's chicken, and eventually accepts the red glare in exchange for access to the chicken. When Kenny's shuts down, the lights go out, and Kramer's overall welfare falls—the benefits of the chicken outweighed the cost of the glare.