The Coase theorem states that ?
Correct answer: B. under certain conditions, private parties can arrive at the efficient solution without government involvement
- A. public goods should be produced up to the point where the additional benefit received by society equals the additional cost of producing the good
- B. under certain conditions, private parties can arrive at the efficient solution without government involvement
- C. the private sector will fail to produce the efficient amount of a public good because of the free-rider problem.
- D. if there are external costs in production the government must intervene in the market to assure that the efficient level of output is produced
Explanation
The Coase theorem holds that, with clearly defined property rights and negligible transaction costs, private parties can bargain to an efficient outcome without government intervention. It does not claim that government intervention is always necessary for externalities.
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Government revenue and expenditure are analysed through taxation, public borrowing, budgets, subsidies, transfers and public debt. The topic explains how fiscal policy affects resource allocation, income distribution, economic stability and growth, while distinguishing direct from indirect taxes, progressive from regressive taxation, and public goods from goods supplied by private markets.
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