The Coase theorem states that,in the presence of externalities,a market economy will:
A)always reach an efficient solution.
B)never reach an efficient solution.
C)reach an efficient solution if transaction costs are sufficiently low and property rights are well-defined.
D)reach an efficient solution only in the case of government regulation.

Question

Quizplus · Accepted Answer

The Coase theorem states that in the presence of externalities, a market economy can reach an efficient solution through bargaining and negotiation between affected parties, as long as transaction costs are sufficiently low and property rights are well-defined. Therefore, choice C is the correct answer. Option A is incorrect because the Coase theorem does not guarantee that an efficient solution will always be reached. Option B is incorrect because the Coase theorem does offer a potential solution for externalities. Option D is incorrect as it suggests that only government intervention can result in an efficient solution, but the Coase theorem suggests that voluntary agreements between parties can also be effective.

The Coase Theorem States That,in the Presence of Externalities,a Market