Multiple Choice
Which of the following is not a way of dealing with externalities?
7. Externalities
Private Solutions to Externalities: The Coase Theorem
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A key element of the Coase theorem is:
A
The ability to negotiate at a minimal cost
B
That externalities occur in the production and consumption of all products
C
That there are no efficient solutions to the problems caused by externalities
D
None of the above
Verified step by step guidance1
Understand the Coase Theorem: It suggests that if property rights are well-defined and transaction costs are low, parties can negotiate to resolve externalities on their own.
Identify the key element: The theorem emphasizes the importance of low transaction costs in negotiations to address externalities.
Consider the options: Evaluate each option to see which aligns with the Coase Theorem's emphasis on negotiation and transaction costs.
Option Analysis: 'The ability to negotiate at a minimal cost' directly relates to the Coase Theorem's focus on low transaction costs.
Conclude: Recognize that the correct answer is the one that highlights the ability to negotiate at minimal cost, as this is central to the Coase Theorem's premise.
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