In which of the following cases is the Coase theorem most likely to solve the externality?
A)Richard is annoyed because his roommate smokes.
B)Chemicals from farms in the Mississippi Valley are polluting the Gulf of Mexico.
C)Car exhaust in a small town is making one of its residents ill.
D)Industrialization around the world is causing acid rain.

Question

Quizplus · Accepted Answer

The Coase theorem is most effective when transaction costs are low and parties can easily negotiate. In the case of Richard and his roommate, the situation involves a small number of parties who can directly negotiate a solution, making it suitable for the Coase theorem.

In Which of the Following Cases Is the Coase Theorem