The Idea That Even in the Presence of Externalities an Economy

question 131

Multiple Choice

The idea that even in the presence of externalities an economy can reach an efficient solution as long as transaction costs of making a deal are low and property rights are well-defined is known as:

• A)a Pigouvian tax.
• B)a network externality.
• C)a technology spillover.
• D)the Coase theorem.

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Definitions:

Independent Director Control

A theory of corporate control that states that the best way to make certain that corporate decisions are made in the best interests of the corporation is to make sure that the decision makers themselves are not affected by the decisions.

Corporate Democracy

The system or practices within a corporation that allow for the participation and voting rights of shareholders in company decision-making processes.

Business Judgment Rule

A legal principle that protects the decisions of corporate directors and officers, made in good faith and with reasonable diligence, from being second-guessed by courts.

Fairness Rule

The rule that requires managers to be fair to the corporation when they personally benefit from their business decisions.