If transaction costs are low and property rights are clearly identifiable, an efficient market equilibrium can be achieved even when externalities exist.

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Quizplus · Accepted Answer

When transaction costs are low and property rights are clearly identifiable, individuals are able to negotiate and bargain with each other to internalize externalities, thus achieving an efficient market equilibrium despite the presence of externalities. This is known as the Coase theorem. However, if transaction costs are high or property rights are not well-defined, the market may fail to achieve an efficient outcome.

If Transaction Costs Are Low and Property Rights Are Clearly