According to the Coase theorem, externality problems
A) do not exist in reality, because all costs and beneﬁts are internal to ﬁrms.
B) can be solved through private negotiations without the need for government intervention.
C) must only be resolved by government action, through either taxes or subsidies.
D) can never be resolved adequately, because one party always gains while the other loses.

Question

Quizplus · Accepted Answer

According to the Coase theorem, externality problems can be solved through private negotiations between parties involved without the need for government intervention. This is based on the assumption that property rights are well defined and transaction costs are low. Therefore, option B is the best choice.

According to the Coase Theorem, Externality Problems