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- Subject
- Externality & Internalityeconomics-mcqs › externality-internality
- Published
- 1 Jun 2019
- Last updated
- 28 May 2026
Explanation
The Coase theorem states that private parties can efficiently address externalities if there are no transaction costs involved. This allows them to negotiate and reach mutually beneficial agreements without external intervention. Factors such as equal bargaining power, initial property rights, the number of affected parties, or government enforcement are not necessary conditions for this outcome.
More Externality & Internality MCQs
Practice related questions from the same subject.
- 1.What is the primary function of tradable pollution permits?
- 2.The gas-guzzler tax imposed on new vehicles with poor fuel efficiency serves as an example of which economic concept?
- 3.Roberto and Thomas share a university dorm room. Roberto enjoys playing loud music, valuing it at €100, while Thomas prefers silence, valuing peace at €150. Assuming Roberto has the legal right to play loud music and there are no costs involved in negotiation, which of the following best describes an efficient outcome to this externality issue?
- 4.Which of the following is not classified as a transaction cost borne by parties when negotiating to address a pollution externality?
- 5.What type of external effect is created when a person purchases a vehicle in a heavily trafficked city?
- 6.Which public policy is most effective in addressing a negative externality by internalizing its social costs?
- 7.What is the effect of an unaddressed negative externality on the market quantity produced?
- 8.What results from the presence of a negative externality in a market?
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