Which concept suggests that the private market can be effective in dealing with externalities
A)the "invisible hand"
B)the law of diminishing social returns
C)the Coase theorem
D)technology policy

Question

Quizplus · Accepted Answer

The Coase theorem suggests that the private market can be effective in dealing with externalities. It proposes that, under certain conditions, a negotiation between the parties involved in an externality can lead to an efficient outcome without government intervention. This negotiation involves the assignment of property rights, and the party who values those rights the most will pay the other party to change their behavior. This process will continue until the marginal benefit of reducing externalities is equal to the marginal cost, resulting in an optimal outcome for both parties. The Coase theorem highlights the role of markets in resolving externality problems, making it the best choice among the given options.

Which Concept Suggests That the Private Market Can Be Effective