Question

question 2 (2 points) which of the following statements describes what the coase theorem suggests? a) externalities cannot be solved by private negotiation b) government intervention is always needed to solve externalities c) private parties can solve externalities on their own if transaction costs are low

Explanation:

The Coase Theorem states that if property rights are well - defined and transaction costs are low, private parties can bargain to an efficient outcome regardless of the initial allocation of property rights. So, when transaction costs are low, private parties can solve externalities on their own. Externalities can be solved by private negotiation under certain conditions. And government intervention is not always needed to solve externalities when private solutions are possible.

Answer:

c) Private parties can solve externalities on their own if transaction costs are low