The Proposition That If Private Parties Can Bargain Without Cost

question 185

Multiple Choice

The proposition that if private parties can bargain without cost over the allocation of resources,they can solve the problem of externalities on their own,is called

• A) the Pigouvian theorem.
• B) a corrective tax.
• C) the externality theorem.
• D) the Coase theorem.

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Definitions:

Break-even

The point at which total revenues equal total costs, resulting in neither profit nor loss for the business.

Margin of Safety

The difference between actual or projected sales and the break-even point. It indicates the amount of sales decline a business can endure before it starts incurring losses.

Variable Costs

Costs that change in proportion to the level of activity or production volume.

Fixed Costs

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