Coase argued that in competitive markets, efficient outcomes can be achieved through negotiation, but in practice, negotiating is often costly and difficult, leading to the persistence of externalities. Therefore, answer C is the correct choice.

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According to Coase

Question 108

Multiple Choice

According to Coase,

A) externalities do not matter in truly competitive markets because people can always negotiate around them.
B) people in competitive markets can never negotiate to overcome externalities.
C) people in competitive markets often fail to overcome externalities because negotiating is costly.
D) people in competitive markets can overcome the principal-agent problem if the agents negotiate well.

Correct Answer: