According to the Coase theorem, externalities
A)must usually be internalized by taxation or subsidy.
B)can be internalized by the market under certain conditions.
C)result when firms fail to maximize profits.
D)cannot be internalized if property rights are assigned.
E)are not relevant to the issue of market failure.

Question

Quizplus · Accepted Answer

The Coase theorem posits that if property rights are clearly defined and transaction costs are low, externalities can be internalized through negotiation and agreement between parties, without the need for government intervention.

According to the Coase Theorem, Externalities