The Coase theorem posits that externality problems can be solved without government intervention:
A) when transaction costs are low and property rights are clearly defined.
B) when trading in tradable allowances occurs.
C) if markets can reach the efficient quantity and if transaction costs exceed the deadweight loss caused in the market.
D) only rarely, that in general, markets cannot maximize social surplus.

Question

Quizplus · Accepted Answer

The Coase theorem states that if transaction costs are low and property rights are clearly defined, then private parties can negotiate and solve externalities without the need for government intervention. The parties can come to an agreement to internalize the externalities and reach an efficient outcome.

The Coase Theorem Posits That Externality Problems Can Be Solved