Under the Coase Theorem, a Private Solution to an Externality

question 46

Multiple Choice

Under the Coase theorem, a private solution to an externality yields _______ amount of efficiency and _______ distribution of surplus as compared to a government solution.

• A)the same; the same
• B)the same; a different
• C)a different; the same
• D)a different; a different

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Definitions:

Security

Financial instruments or assets held to back debts or investments, or as a means to ensure the fulfillment of financial obligations.

Insurance Contract

A legally binding agreement between an insurer and the insured, detailing the terms for the payment of claims under certain conditions.

Securities Act

A law or legislation that regulates the issuance and sale of securities to protect investors against misrepresentation, deceit, and other frauds.

Proxy

A document evidencing the transfer of a shareholder’s voting right to an appointee, either with instructions for voting, or allowing discretion to be exercised by the appointee, at a meeting of shareholders of the corporation.