The Coase theorem suggests that private markets may not be able to solve the problem of externalities
A)if the government does not become involved in the process.
B)when the number of interested parties is large and bargaining costs are high.
C)if the firm in the market is a monopoly.
D)if some people benefit from the externality.

Question

Quizplus · Accepted Answer

The Coase theorem states that if property rights are clearly defined and transaction costs are low, then private markets can resolve externalities through bargaining. However, in cases where there are a large number of interested parties and high bargaining costs, private markets may not be able to efficiently allocate resources and solve the externality problem.

The Coase Theorem Suggests That Private Markets May Not Be