Which of the following statements is consistent with the Coase theorem?
A)In the case of positive transaction costs, a property rights assignment (made by a court)will be undone if it benefits the relevant parties to undo it.
B)In the case of zero transaction costs, the resource allocative outcome will be the same no matter who is assigned the property right.
C)Taxes can do what property rights assignments cannot.
D)The market can solve all negative externality problems.

Question

Quizplus · Accepted Answer

The Coase theorem states that with zero transaction costs, the property rights assignment will not affect the allocative efficiency outcome. Therefore, choice B is consistent with the Coase theorem. Choices A, C, and D are not consistent with the Coase theorem. Choice A implies that property rights assignments can be undone, which contradicts the irrelevance of property rights under zero transaction costs. Choice C implies that taxes can correct negative externalities better than property rights assignments, but the Coase theorem does not address the effectiveness of taxes. Choice D is too broad of a statement and does not consider the transaction costs involved in the market.

Which of the Following Statements Is Consistent with the Coase