Suppose a Negative Externality Exists in a Market

question 16

Multiple Choice

Suppose a negative externality exists in a market. If transactions costs are low and parties are willing to bargain, then, according to the Coase theorem,

• A) an equitable solution can be reached only if property rights are assigned to the victims of pollution and not the polluters.
• B) an equitable solution can be reached only if property rights are assigned to polluters and not to the victims of pollution.
• C) an efficient solution can be reached regardless of the initial assignment of property rights.
• D) government intervention is necessary to reach an efficient and equitable solution.

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Definitions:

Right-Brained

Refers to a theory in which the right hemisphere of the brain is more responsible for creative, intuitive, and holistic thought processes.

Left-Brained

Referring to an outdated theory where an individual is thought to be more analytical and logical, supposedly due to the dominant use of the left hemisphere of the brain.

Hemisphere Specialization

The concept that certain functions are more dominantly handled by one of the two hemispheres of the brain.

Corpus Callosum

A broad band of nerve fibers joining the two hemispheres of the brain.