The Coase Theorem Asserts That the Private Market Will Always

question 68

Multiple Choice

The Coase theorem asserts that the private market will always solve the problem of externalities and allocate resources efficiently

• A)even if private parties experience substantial costs of bargaining.
• B)even if the initial distribution of legal rights is skewed in favor of some private parties over others.
• C)only when there is a large number of private parties that engage in bargaining.
• D)All of the above are correct.

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Definitions:

Lessee

A person or entity that leases property or equipment from another, known as the lessor, under a lease agreement.

Lessor

An entity or individual that owns an asset and grants another party the right to use that asset in exchange for periodic rental payments.

Capital Lease

A lease classified by the lessee as an asset and liability on the balance sheet because it effectively transfers substantially all risks and rewards of ownership to the lessee.

Executory Costs

These are costs associated with fulfilling the terms of a contract, excluding the direct material and direct labor costs, such as utilities, insurance, and property taxes involved in leasing.