The Coase solution to the problem of externalities _____
A)applies in every situation where externalities are present.
B)only applies to activities that generate positive externalities.
C)only works under perfect competition.
D)only works when bargaining costs are low.
E)applies when the number of parties involved in the transaction is large.

Question

Quizplus · Accepted Answer

The Coase solution only works when bargaining costs are low. This means that the affected parties can negotiate a mutually beneficial agreement without incurring significant transaction costs. If bargaining costs are too high, it may be difficult for the parties to reach an agreement, and externalities may persist.

The Coase Solution to the Problem of Externalities _____