Multiple Choice
It is possible to remedy a positive externality by:
7. Externalities
Private Solutions to Externalities: The Coase Theorem
Struggling with Microeconomics?
Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
If the assumptions of the Coase theorem are satisfied, th
A
The externality problem is resolved.
B
The assignment of property rights does not matter for efficiency.
C
There are no coordination and motivation problems.
D
There is no role for the government.
Verified step by step guidance1
Understand the Coase Theorem: The Coase Theorem states that if property rights are well-defined and transaction costs are negligible, parties can negotiate to resolve externalities efficiently, regardless of who holds the initial property rights.
Identify the assumptions: The key assumptions of the Coase Theorem include clearly defined property rights, zero transaction costs, and rational actors who can negotiate without barriers.
Analyze the role of property rights: According to the theorem, the initial assignment of property rights does not affect the efficiency of the outcome, as parties will negotiate to reach an efficient allocation of resources.
Consider the absence of government intervention: With the assumptions of the Coase Theorem satisfied, there is no need for government intervention to correct the externality, as private negotiations will lead to an efficient outcome.
Evaluate coordination and motivation: The theorem assumes that there are no coordination or motivation problems among the parties involved, allowing them to reach an agreement that resolves the externality.
Related Videos
Related Practice
Private Solutions to Externalities: The Coase Theorem practice set
Problem sets built by lead tutorsExpert video explanations