Economics • Economic BasicsMedium
What is the primary implication of the 'Coase Theorem' in welfare economics regarding externality problems?
A. Governments must always impose corrective taxes to eliminate negative externalities
B. Private economic actors can allocate resources efficiently and solve externality problems through bargaining, provided transaction costs are low✓ Correct Answer
C. Property rights must be held exclusively by the state to avoid social conflicts
D. Monopolies are the only entities capable of internalizing large-scale industrial pollution
💡 Solution & Explanation
The Coase Theorem posits that private economic agents can resolve externality issues efficiently through voluntary bargaining without state intervention, provided transaction costs are minimal and property rights are well-defined. This proposition challenges the traditional view that government intervention is always necessary to correct market failures caused by negative externalities. Economic governance frameworks often utilize this theorem in regulatory policy analysis.
More Economics Economic Basics questions
- Which of the following describes 'Economies of Scale'?
- What does the 'Permanent Income Hypothesis', formulated by Milton Friedman, suggest about consumer spending…
- Which of the following economic concepts refers to the cost of foregoing the next best alternative when…
- Evaluate the theoretical properties of the IS-LM model in macroeconomics. What does the LM curve represent in…
- Examine the theoretical underpinnings of the permanent income hypothesis formulated by Milton Friedman. What…