Suppose a Negative Externality Exists in a Market

question 169

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 efficient solution can be reached only if property rights are assigned to the victims of the pollution.
• B)an efficient solution can be reached only if property rights are assigned to the polluters.
• C)an efficient solution can be reached regardless of the initial assignment of property rights.
• D)government intervention is critical to reach an efficient solution.

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Definitions:

Credit Union

A member-owned financial cooperative that is created and operated by its members and provides credit at competitive rates as well as other financial services to its members.

Financial Institutions

Organizations such as banks, credit unions, and finance companies that provide a range of financial services including loans, deposits, and investments.

Real Assets

Physical or tangible assets that have intrinsic value, such as real estate, commodities, or natural resources.

Financial Intermediaries

Institutions that act as middlemen between savers and borrowers, including banks, credit unions, and insurance companies.