If transaction costs of negotiating are ____, the ____ suggests that the private market ____ allocate resources.
A)high; Externality Theorem; will efficiently
B)high; Coase Theorem; will not efficiently
C)low; Coase Theorem; will efficiently
D)both b and c

Question

If transaction costs of negotiating are ____, the ____ suggests that the private market ____ allocate resources.
A)​high; Externality Theorem; will efficiently
B)​high; Coase Theorem; will not efficiently
C)​low; Coase Theorem; will efficiently
D)​both b and c

Quizplus · Accepted Answer

The Coase Theorem suggests that if transaction costs are low, private negotiations will lead to the efficient allocation of resources despite externalities. However, if transaction costs are high, the theorem indicates that the market will not allocate resources efficiently. Therefore, both B and C are correct interpretations of the Coase Theorem under different conditions of transaction costs.

If Transaction Costs of Negotiating Are ____, the ____ Suggests

If Transaction Costs of Negotiating Are , the Suggests