The Coase theorem states that in the presence of externalities, a market economy will:
A)always reach an efficient solution.
B)never reach an efficient solution.
C)reach an efficient solution if transaction costs are sufficiently low.
D)reach an efficient solution only in the case of government regulation.

Question

Quizplus · Accepted Answer

The Coase theorem states that in the presence of externalities, a market economy will reach an efficient solution if transaction costs are sufficiently low. This means that if it is cheap and easy for parties to negotiate and reach an agreement, they will be able to bargain and find a solution that maximizes their joint welfare, regardless of who has the property rights. However, if transaction costs are high, the parties may not be able to negotiate an efficient outcome and government intervention may be necessary.

The Coase Theorem States That in the Presence of Externalities