The Coase theorem states that
A) the level of pollution should be equal to zero to maximize social net benefit.
B) profit making producers pollute because they are forced to.
C) the efficient level of output is where marginal external cost equals marginal external benefit.
D) if property rights exist and transactions costs are low, private transactions are efficient.
E) the best way to limit pollution is by taxing producers who pollute.

Question

Quizplus · Accepted Answer

The Coase theorem states that if property rights exist and transactions costs are low, private transactions between parties will efficiently allocate resources, including pollution. Therefore, option D is the correct answer. Option A is incorrect because complete elimination of pollution may not be feasible or economically efficient. Option B is incorrect because producers may choose to pollute to maximize profits. Option C is incorrect because it refers to the efficient level of output, not the allocation of resources. Option E is incorrect because taxing polluters is not always the most efficient solution; private transactions can allocate resources more efficiently.

The Coase Theorem States That