The Coase Theorem Suggests That Private Bargains Will Ensure the Efficiency

question 94

Multiple Choice

The Coase theorem suggests that private bargains will ensure the efficiency of markets even when externalities exist:

• A) but only in the presence of government regulation.
• B) if consumers have more information regarding the externality than suppliers.
• C) if transaction costs are low and property rights are well defined.
• D) if the cost of the negotiations are less than the price of the good.

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Definitions:

Net Operating Income

The income produced through a firm's principal commercial activities, not including the subtractions for interest and taxes.

Sales Volume

The total quantity of goods or services sold by a company in a specific period.

Least-Squares Regression

A statistical approach that finds the optimal fitting line by reducing the sum of the squares of the discrepancies between the actual and forecasted values.

Variable Cost

Costs that vary directly with the level of production or sales volume, such as materials and direct labor.