When does the Coase theorem suggest that private markets may NOT be able to solve the problem of externalities
A)when the number of interested parties is large and bargaining costs are high
B)when government does not actively become involved in the process
C)when the firm in the market is a monopoly
D)when some people benefit from the externality

Question

Quizplus · Accepted Answer

The Coase theorem suggests that private markets can solve the problem of externalities if bargaining costs are low and property rights are well defined. However, when there are a large number of interested parties and bargaining costs are high, it may not be possible to reach a mutually agreeable solution through private negotiations. In such cases, government intervention may be necessary to address the externality. The other choices (B, C, and D) are not necessarily conditions that prevent private markets from solving the problem of externalities according to the Coase theorem.

When Does the Coase Theorem Suggest That Private Markets May