The Coase Theorem Asserts That, If Externalities Are Present and If

question 226

Multiple Choice

The Coase theorem asserts that, if externalities are present and if private parties can bargain over the allocation of resources at no cost, then

• A)the private market will reach an equilibrium in which resources are allocated inefficiently.
• B)the private market will reach an equilibrium in which resources are allocated efficiently.
• C)the private market cannot reach an equilibrium.
• D)a mixture of corrective taxes and subsidies is necessary for a socially optimal equilibrium.

Recognize the importance of incremental cash flow principles in evaluating projects.

Understand the treatment and implications of depreciation for tax purposes.

Identify the significance of salvage value and recovery of working capital in the final year cash flow of a project.

Approach subjectively estimated cash flows with caution, incorporating conservative and reasonable estimates.

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