The Coase Theorem States That

question 251

Multiple Choice

The Coase theorem states that

• A) the private sector will fail to produce the efficient amount of a public good because of the free-rider problem.
• B) under certain conditions, private parties can arrive at the efficient solution without government involvement.
• C) if there are external costs in production, the government must intervene in the market to assure that the efficient level of output is produced.
• D) public goods should be produced up to the point where the additional benefit received by society equals the additional cost of producing the good.

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Definitions:

Simultaneous Equations

A set of equations containing multiple variables that are solved together since the solution to one equation depends on the solutions of the others.

Additional Costs

Expenses that are not originally planned or budgeted, arising unexpectedly during the production or execution process.

Joint Cost

The cost of the input and process that yields two or more products in fixed proportions as a result. For example, the cost of the barrel of oil and of splitting it into gasoline and motor oil is a joint cost.