If a Person Does NOT Pay All Costs Associated with a Particular

question 141

Multiple Choice

If a person does NOT pay all costs associated with a particular resource-using activity, then

• A) the external costs of the activity are greater than the private costs of the activity.
• B) the social costs of the activity are greater than the private costs of the activity.
• C) the external costs of the activity are greater than the internal costs of the activity.
• D) the full costs of the activity are the sum of private costs plus internal costs.

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Definitions:

Bargaining

The process of negotiating the terms of a transaction or agreement between parties with differing interests.

Coase Theorem

An economic theory that suggests that if property rights are well-defined and transaction costs are minimal, voluntary negotiations will lead to the efficient resolution of disputes regarding resource allocation.

Cost Of Bargaining

The expenses, in terms of both time and resources, that are involved in reaching an agreement in a bargaining process.

Property Rights

Legal principles that define the ownership and use of resources, including the ability to transfer, exclude, and derive benefits from them.