According to the Coase Theorem, Private Parties Can Solve the Problem

question 37

Multiple Choice

According to the Coase theorem, private parties can solve the problem of externalities if

• A) there are no transaction costs.
• B) each affected party has equal power in the negotiations.
• C) the party affected by the externality has the initial property right to be left alone.
• D) there are a large number of affected parties.
• E) the government requires them to negotiate with each other.

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Definitions:

Capital Account

A capital account tracks the net value of a company's assets contributed by its owners and investors plus retained earnings or minus any distributions to owners.

Ending Capital Balance

The amount of money that a company or individual has in their capital account at the end of a fiscal period, after all transactions have been accounted for.

Net Purchases

The total amount of purchases after subtracting any purchases returns, allowances, and discounts.