The Coase Theorem States That in the Presence of Externalities

question 33

Multiple Choice

The Coase theorem states that in the presence of externalities, a market economy will:

• A)always reach an efficient solution.
• B)never reach an efficient solution.
• C)reach an efficient solution if transaction costs are sufficiently low.
• D)reach an efficient solution only in the case of government regulation.

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Definitions:

Prime Rate

The interest rate that banks charge their most creditworthy customers.

Loan Repayment

The process through which a borrower returns borrowed money to the lender, usually in scheduled installments.

Commercial Paper

An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts payable and inventories, and meeting short-term liabilities.

Issue Date

The date on which a document, such as a check, bond, or stock, is issued or goes into effect.