According to the Coase theorem, an externality can sometimes be resolved privately when:
Correct answer: B. Property rights are clear and transaction costs are low
- A. Property rights are unclear and bargaining is costly
- B. Property rights are clear and transaction costs are low
- C. The government fixes every market price
- D. Consumers have identical income levels
Explanation
The Coase theorem states that clearly assigned property rights and low transaction costs can allow affected parties to bargain toward an efficient outcome. The final distribution of income may differ, but the allocation can become efficient. High bargaining costs make private resolution less likely.
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