The Coase Theorem Suggests That a Private Transaction Can Compensate

question 24

Multiple Choice

The Coase theorem suggests that a private transaction can compensate for an externality when private property rights exist. In practice, why doesn't it work when large numbers of people are involved?

• A) because marginal costs are higher than marginal benefits
• B) because too many politicians get involved
• C) because marginal benefits are higher than marginal costs
• D) because transaction costs are too high

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Definitions:

Process Cost System

An accounting method used to track production costs for large numbers of identical units that are mass-produced in a continuous fashion.

Completed Job

A project or task that has been finished and meets all criteria or specifications that were established at its inception.

Partially Completed Units

Items in production that have not yet been fully completed or processed through all stages of the manufacturing or production cycle.

Process Cost Accounting

An accounting methodology used to allocate costs to units of production in processes involving continuous mass production of similar products.