According to the Coase Theorem, Externalities

question 184

Multiple Choice

According to the Coase theorem, externalities

• A)must usually be internalized by taxation or subsidy.
• B)can be internalized by the market under certain conditions.
• C)result when firms fail to maximize profits.
• D)cannot be internalized if property rights are assigned.
• E)are not relevant to the issue of market failure.

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Definitions:

Supply and Demand

The fundamental economic model that explains how the market price of a product is determined by the quantity of the product that producers are willing to supply and the quantity that consumers are willing to purchase.

Labor Market

The marketplace where workers offer their services for wages and employers look for workers to hire.

Wages

Remuneration provided to workers for their work, often determined on a per hour, per day, or per piece completed basis.

Rental Price of Capital

The cost of using capital goods for a specific period, reflecting the opportunity cost of utilizing these assets in production.