Which of the following suggests that private markets can be effective in dealing with externalities?
A)the "invisible hand"
B)the law of diminishing social returns
C)the Coase theorem
D)technology policy

Question

Quizplus · Accepted Answer

The Coase theorem suggests that private markets can internalize externalities through negotiation and bargaining between parties, as long as there are no transaction costs and property rights are clearly defined. This implies that private markets can be effective in dealing with externalities. Choice A is a general term for the market's ability to allocate resources efficiently, but it does not directly address externalities. Choice B refers to the idea that as more resources are allocated to a particular activity, each additional unit of input will produce smaller and smaller gains, but it also does not address externalities. Choice D refers to government policies to promote certain technologies, which is not directly related to private markets and externalities.

Which of the Following Suggests That Private Markets Can Be