Suppose a Negative Externality Exists in a Market

question 16

Multiple Choice

Suppose a negative externality exists in a market. If transactions costs are low and parties are willing to bargain, then, according to the Coase theorem,

• A) an equitable solution can be reached only if property rights are assigned to the victims of pollution and not the polluters.
• B) an equitable solution can be reached only if property rights are assigned to polluters and not to the victims of pollution.
• C) an efficient solution can be reached regardless of the initial assignment of property rights.
• D) government intervention is necessary to reach an efficient and equitable solution.

---

Definitions:

Federal Trade Commission Act

A U.S. law established in 1914 to prevent unfair competition, fraudulent marketing, and monopolies, creating the Federal Trade Commission (FTC) to enforce these regulations.

Tax Incentives

Financial benefits provided by the government to encourage certain behaviors or investments, such as tax credits or deductions.

Americans with Disabilities Act

A civil rights law that prohibits discrimination against individuals with disabilities in all areas of public life.

Telecommunication Services

Services that provide communication over distances, including telephone, internet, and television services.