Question

The Coase theorem suggests that private parties a. can always negotiate to correct a negative externality. b. will never be able to negotiate to correct a negative externality. c. can never negotiate to correct a negative externality if there are more than two parties involved. d. can negotiate to correct a negative externality if there are no barriers to negotiation. e. can negotiate to correct a negative externality if the government passes a law allowing them to do so.

Answer 1

Answer: d. Can negotiate to correct a negative externality if there are no barriers to negotiation.

Step-by-step explanation:

The Coase Theorem posits that if there are no barriers to a transaction the conditions of an Efficient, Competitive Market must be observed, chief amongst them, NO transaction costs, then parties can be able to negotiate to correct Negative Externalities.

This means that given the right conditions, Parties can find an amicable way to use scarce resources in an optimal way.

Note: No Transaction costs in this scenario can also refer to No Barriers to Negotiation.

Answer 2

Answer: can negotiate to correct a negative externality if there are no barriers to negotiation(D)

Step-by-step explanation:

The Coase theorem states that without government interventions, private parties can provide efficient solutions to externalities. Externalities is the cost or benefits that is incurred on a third party as a result of the consumption or production activities of a person or firm.

The Coase theorem states that when there is low transaction cost, two parties will be able to bargain and then reach an efficient outcome.