The Coase Theorem Suggests That Private Solutions to the Externality

question 158

Multiple Choice

The Coase theorem suggests that private solutions to the externality problem:

• A)will always allocate resources efficiently if private parties can bargain without cost
• B)are effective under all conditions
• C)are only efficient when there are negative externalities
• D)may not be possible because of the distribution of property rights

---

Definitions:

Scrap Value

The estimated residual value of an asset at the end of its useful life, often considered when calculating depreciation.

Cash Inflows

Money received by a business from various sources, including operations, investment, and financing activities.

Payback Period

The length of time it takes for an investment to generate enough cash flow to recover its initial cost.

Project Profitability Index

A financial metric used to analyze the potential return of an investment project considering its present value of cash inflows and initial investment.