Asked by Anika Singh on Jun 23, 2024
Verified
The idea that even in the presence of externalities an economy can reach an efficient solution as long as transaction costs of making a deal are low and property rights are well-defined is known as:
A) a Pigouvian tax.
B) a network externality.
C) a technology spillover.
D) the Coase theorem.
Coase Theorem
An economic theory stating that if trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property rights.
Externalities
Economic side effects or consequences that affect uninvolved third parties; can be positive or negative.
- Familiarize oneself with the Coase theorem and understand the conditions needed to reach efficient outcomes in situations with externalities.
Verified Answer
TL
Taise LigonsJun 29, 2024
Final Answer :
D
Explanation :
The idea described in the question is known as the Coase theorem, named after economist Ronald Coase. The Coase theorem states that in the presence of externalities, an efficient solution can be reached through private bargaining as long as property rights are well-defined and transaction costs are low. The theorem emphasizes the importance of defining clear property rights to encourage private bargaining between affected parties.
Learning Objectives
- Familiarize oneself with the Coase theorem and understand the conditions needed to reach efficient outcomes in situations with externalities.
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