Asked by Hailey Mosley on Jun 01, 2024
Verified
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.
Coase Theorem
A principle that suggests that if property rights are well-defined and transaction costs are negligible, parties will negotiate to correct externalities without the need for government intervention.
Externality Problems
Issues arising when the actions of individuals or firms have effects on third parties that are not reflected in market prices.
- Utilize the Coase theorem in formulating potential solutions for addressing issues related to externalities through negotiation.
Verified Answer
FC
Faith ConnellyJun 06, 2024
Final Answer :
B
Explanation :
The Coase theorem suggests that if property rights are clearly defined and transaction costs are low, externalities (costs or benefits that affect a party who did not choose to incur that cost or benefit) can be efficiently resolved through private negotiations without the need for government intervention.
Learning Objectives
- Utilize the Coase theorem in formulating potential solutions for addressing issues related to externalities through negotiation.