The Coase theorem states that the externality problem can be solved by private bargaining:

Question

Quizplus · Accepted Answer

The Coase theorem states that private bargaining can solve the externality problem if bargaining is costless and property rights are clearly established. Therefore, choice C is the correct answer. Choice A is incorrect because the Coase theorem only applies to externalities that affect private parties. Choice B is incorrect because the Coase theorem only applies to private externalities. Choice D is incorrect because the Coase theorem assumes no government intervention.

The Coase Theorem States That the Externality Problem Can Be