Question

The Coase theorem will apply only if

A) an individual who is not affected by the externality can negotiate a settlement between the parties imposing the externality and the parties that are harmed by the externality.
B) the small number of people are involved.
C) the market is perfectly competitive.
D) the courts can be used to determine the amount of compensation that must be made to the damaged party.
E) the amount of compensation that must be made to the damaged party is small."

Answer 1

The Coase theorem applies when there are well-defined and enforceable property rights, allowing individuals to negotiate an efficient outcome. It is not dependent on factors like the number of people involved, market competitiveness, or compensation size.

Step-by-step explanation:

The Coase theorem applies when there are well-defined and enforceable property rights. It states that if individuals can negotiate without transaction costs, they can reach an efficient outcome regardless of the initial allocation of property rights.

The Coase theorem does not depend on factors such as the number of people involved, the competitiveness of the market, or the size of compensation to the damaged party.