Which of the Following Statements Is True

question 154

Multiple Choice

Which of the following statements is true?

• A)The lower transaction costs are, the more likely individuals will solve negative externality problems through a voluntary exchange.
• B)The higher transaction costs are, the more likely individuals will solve negative externality problems through a voluntary exchange.
• C)Coase agrees with Pigou that taxing those activities associated with negative externalities is a good idea.
• D)Coase agrees with Pigou that taxing those activities associated with positive externalities is a good idea.

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Definitions:

Fixed Costs

Costs that do not change with the level of production or sales, such as rent, salaries, and insurance premiums.

Short Run

A period in economics where the output is influenced by the level of production capacity, and certain economic conditions or costs cannot change.

Long Run

In economics, a period in which all inputs can be adjusted by firms, and there are no fixed costs, allowing for full industry adjustment.

Diminishing Returns

An economic principle stating that as investment in a particular area increases, the rate of profit from that investment, after a certain point, begins to decrease.