Question

The Coase theorem states that, in the presence of externalities, a market economy will:

Select one:

a. reach an efficient solution only in the case of government regulation.
b. always reach an efficient solution.
c. never reach an efficient solution.
d. reach an efficient solution if transaction costs are sufficiently low and property rights are well-defined.

Answer 1

d) reach an efficient solution if transaction costs are sufficiently low and property rights are well-defined.

Step-by-step explanation:

Coase theorem states that the elected parties are able to find the efficient solution for externalities if the transaction cost are low.

Main points of Coase theorem

1) Parties able to find efficient solution when affected by externality

2) Transaction cost must be low but practically it rarely low so in that case coase theorem sometimes inapplicable