According to the Coase Theorem, in the Presence of Externalities

question 354

Multiple Choice

According to the Coase theorem, in the presence of externalities

• A)private parties can bargain to reach an efficient outcome.
• B)government assistance is necessary to reach an efficient outcome.
• C)the assignment of legal rights can prevent externalities.
• D)the initial distribution of property rights will determine the efficient outcome.

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Definitions:

Supply Curves

Graphical representations showing the relationship between the price of a good or service and the quantity of that good or service that a supplier is willing to offer for sale.

Price Floors

A government- or authority-imposed minimum price that sellers must charge for a good or service, essentially preventing prices from falling below this set level.

Ceiling Prices

Maximum prices set by the government on certain goods and services to prevent excessive pricing during shortages or inflationary periods.

Rationing Function

The ability of market prices to distribute scarce goods and services among consumers based on willingness and ability to pay.