When there are externalities, economic efficiency can be achieved without government intervention:
A) at no time.
B) when the externality affects many people and property rights are not well defined.
C) when the externality affects many people and property rights are well defined.
D) when the externality affects only a few parties and property rights are not well defined.
E) when the externality affects only a few parties and property rights are well defined.

Question

Quizplus · Accepted Answer

When the externality affects only a few parties and property rights are well defined, negotiations among affected parties can lead to a mutually beneficial outcome without the need for government intervention. This is known as the Coase Theorem. In this case, parties can negotiate to reach a mutually beneficial agreement that leads to economic efficiency.

When There Are Externalities, Economic Efficiency Can Be Achieved Without