Econ 6.3

Which of the following is an implication of the Coase Theorem?

Government intervention is not always necessary to solve externality problems.

For the Coase theorem to work there must be clear assignment of property rights.

True

Suppose a negative externality exists in a market. If transactions costs are low and parties are willing to bargain then, according to the Coase theorem

an efficient solution can be reached regardless of the initial assignment of property rights.

The Coase theorem states that

if transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities.

The Coase Theorem states that ________.

negotiation between economic agents leads to an efficient allocation of resources

Private solutions to externalities are most effective if ________.

transaction costs associated with bargaining are low

Private solutions to the problem of externalities are most likely when

transactions costs are low and the number of bargaining parties is small.

If the paint on your house was eaten away by the fumes from a factory nearby and you hired a lawyer to sue the polluting firm, your legal fees would be considered

transactions costs.

The costs in time and other resources that parties incur in the process of facilitating an exchange of goods and services are called

transactions costs.