The Coase Theorem Suggests That Private Solutions to an Externality

question 270

Multiple Choice

The Coase theorem suggests that private solutions to an externality problem

• A)are effective under all conditions.
• B)will always allocate resources efficiently if private parties can bargain without cost.
• C)are only efficient when there are negative externalities.
• D)may not be possible because of the distribution of property rights.

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Definitions:

Transferability

The ability of an asset to be transferred or converted easily from one individual to another without affecting its value.

Human Capital

A collection of proficiencies, knowledge, or invisible assets owned by individuals that can be leveraged to bring about economic prosperity for themselves, their work environments, or their community.

Compensating Differential

A difference in wages that compensates workers for undesirable aspects of a job, such as hazardous working conditions or undesirable hours.

Labor Supplied

The sum of hours employees are ready and available to work for a specified pay rate.