The Coase Theorem Asserts That, If Externalities Are Present and If

question 226

Multiple Choice

The Coase theorem asserts that, if externalities are present and if private parties can bargain over the allocation of resources at no cost, then

• A)the private market will reach an equilibrium in which resources are allocated inefficiently.
• B)the private market will reach an equilibrium in which resources are allocated efficiently.
• C)the private market cannot reach an equilibrium.
• D)a mixture of corrective taxes and subsidies is necessary for a socially optimal equilibrium.

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Definitions:

Direct Labor Time Variance

The difference between the actual time spent on production and the standard time expected, multiplied by the direct labor rate.

Actual Costs

The real costs incurred in the production, acquisition, or other activities of a business, as opposed to estimated or budgeted costs.

Standard Costs

An accounting practice where predetermined costs are used for calculating the cost of production, often for budgeting and performance evaluation purposes.

Direct Materials Quantity Variance

The difference between the actual quantity of materials used in production and the standard amount expected to be used, multiplied by the standard cost per unit of material.