According to the Coase theorem, private markets will solve externality problems and allocate resources efficiently as long as
A)the externalities that are present are positive, not negative.
B)government assigns property rights to the harmed party.
C)private parties can bargain with sufficiently low transaction costs.
D)businesses determine an appropriate level of production.

Question

Quizplus · Accepted Answer

The Coase theorem argues that private markets can efficiently allocate resources even in the presence of externalities as long as private parties can negotiate with low transaction costs. Option A is incorrect because the Coase theorem applies to both positive and negative externalities. Option B is incorrect because it assumes that government intervention is necessary to solve externalities, which contradicts the Coase theorem's premise. Option D is incorrect because it assumes that businesses alone can determine an appropriate level of production, but the Coase theorem emphasizes the importance of negotiations between private parties.

According to the Coase Theorem, Private Markets Will Solve Externality