Suppose that a large tree on Betty's property is blocking Chuck's view of the lake below. Betty accepts Chuck's offer to pay Betty $100 for the right to cut down the tree. This situation describes
A)the Coase theorem.
B)the optimal allocation of a social good.
C)a positive externality.
D)a market for externality rights.

Question

Quizplus · Accepted Answer

The Coase theorem suggests that if property rights are well-defined and transaction costs are low, parties can negotiate to resolve externalities on their own. In this case, Betty and Chuck are negotiating the externality of the tree blocking the view.

Suppose That a Large Tree on Betty's Property Is Blocking