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.

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Definitions:

Future Earnings

Projected income or profit that an individual, company, or asset is expected to generate in the future.

Migration

The movement of people from one place to another, often from one country to another, for reasons such as employment, education, or escape from conflict.

Wage Rate

The amount of compensation or payment given to an employee for work performed, typically expressed as a rate per hour or piece.

Zinnia

A genus of plants of the sunflower tribe within the daisy family, known for their vividly colored flowers.