Suppose a Negative Externality Exists in a Market

question 169

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 efficient solution can be reached only if property rights are assigned to the victims of the pollution.
• B)an efficient solution can be reached only if property rights are assigned to the polluters.
• C)an efficient solution can be reached regardless of the initial assignment of property rights.
• D)government intervention is critical to reach an efficient solution.

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