Which of the following statements is correct?
A)The establishment of property rights sometimes gives rise to market failure.
B)The absence of property rights sometimes gives rise to market failure.
C)In the context of public goods, the Coase theorem implies that total surplus in some markets can be improved by the elimination of property rights.
D)Government regulation of private behavior, in response to market failure, can never improve social well-being.

Question

Quizplus · Accepted Answer

The absence of property rights sometimes gives rise to market failure because without clear ownership and control, individuals may overuse or underinvest in the resource, leading to inefficient outcomes. The establishment of property rights typically creates more efficient markets, but in some cases, such as with common-pool resources, property rights may not be well-defined and lead to negative externalities that cause market failure. Option A is not always true, and Option C and D are incorrect. The Coase theorem states that as long as property rights are well-defined and transaction costs are low, private bargaining can solve the problem of externalities without government intervention. Government regulation can improve social well-being in cases of market failure but may not always be the most optimal solution.

Which of the Following Statements Is Correct