The Coase theorem suggests that private bargains will ensure the efficiency of markets even when externalities exist:
A) but only in the presence of government regulation.
B) if consumers have more information regarding the externality than suppliers.
C) if transaction costs are low and property rights are well defined.
D) if the cost of the negotiations are less than the price of the good.

Question

Quizplus · Accepted Answer

The Coase theorem states that private individuals can solve problems of externalities through private negotiations as long as property rights are well defined and transaction costs are low. Hence, option C is the correct choice. Options A, B, and D are incorrect as they do not align with the conditions required by the theorem.

The Coase Theorem Suggests That Private Bargains Will Ensure the Efficiency