The Coase theorem asserts that, if externalities are present and if private parties can bargain over the allocation of resources at no cost, then
A)the private market will reach an equilibrium in which resources are allocated inefficiently.
B)the private market will reach an equilibrium in which resources are allocated efficiently.
C)the private market cannot reach an equilibrium.
D)a mixture of corrective taxes and subsidies is necessary for a socially optimal equilibrium.

Question

Quizplus · Accepted Answer

The Coase theorem states that if private parties can bargain without cost, they will always reach a mutually beneficial solution, regardless of the initial allocation of property rights. This means that resources will be allocated efficiently. Therefore, the correct choice is B.

The Coase Theorem Asserts That, If Externalities Are Present and If