According to the Coase theorem, when negative externalities are present, a market will:
A) always reach an efficient solution.
B) reach an efficient solution if transaction costs are low and property rights are well-defined.
C) reach an efficient solution only if the government intervenes in the market.
D) reach an efficient solution only if the negative externalities are offset by positive externalities.

Question

Quizplus · Accepted Answer

The Coase theorem states that if transaction costs are low and property rights are well-defined, parties can negotiate to reach an efficient solution to the problem of externalities without government intervention.

According to the Coase Theorem, When Negative Externalities Are Present