The Coase Theorem Suggests That Private Markets May Not Be

question 114

Multiple Choice

The Coase theorem suggests that private markets may not be able to solve the problem of externalities

• A)if the government does not become involved in the process.
• B)when the number of interested parties is large and bargaining costs are high.
• C)if the firm in the market is a monopoly.
• D)if some people benefit from the externality.

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Definitions:

Fair Market Value

An estimate of the price at which an asset would change hands between a willing buyer and seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.

Cost

The amount of money or resources expended in order to obtain an item or service.

Monetary Unit Assumption

An accounting principle that assumes transactions and events can be represented in monetary units or currency.

Economic Entity Assumption

An accounting principle that treats a company as a separate entity from its owners for financial reporting purposes.