The Coase theorem is the proposition that private economic transactions are efficient if the number of involved parties is small, if property rights _______, and transactions costs are ________.
A) exist; high
B) exist; low
C) do not exist; high
D) do not exist; low

Question

Quizplus · Accepted Answer

The Coase theorem asserts that when property rights exist and transaction costs are low, private economic transactions will be efficient. This is because, in such a scenario, parties involved can negotiate and reach mutually beneficial agreements without incurring significant costs, leading to efficient allocation of resources. However, if transaction costs are high, then parties may not be able to reach agreements, leading to inefficient outcomes. Similarly, if property rights are not well-defined, the transaction costs associated with determining and enforcing property rights will be high, hindering efficient transactions.

The Coase Theorem Is the Proposition That Private Economic Transactions