What Happens When Parties Who Are Bargaining to Eliminate an Externality

question 44

Multiple Choice

What happens when parties who are bargaining to eliminate an externality problem hold out for a better deal

• A)Bargaining breaks down and the inefficient outcome persists.
• B)The eventual outcome will maximize total well-being.
• C)Transaction costs must be reduced as part of the bargain.
• D)One party will gain more than the other party.

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Definitions:

Pure Competition

A market structure characterized by many buyers and sellers, free entry and exit, and a homogeneous product, leading to price determination by supply and demand.

Price-taking Behavior

Describes individuals or companies that accept market prices as given because they have no power to influence those prices.

Pure Competition

A market structure characterized by many buyers and sellers, homogenous products, and no barriers to entry or exit, leading to efficient outcomes.

Market Model

A theoretical construct that describes the workings of a market through a set of mathematical equations or principles, aiming to predict the outcome of market forces.